The award winning equity research department of U.S. securities firm Wedbush is confident that the Bitcoin ecosystem has the potential to transform the global financial system in the coming years.
We believe bitcoin and the associated technology have the potential to disrupt the legacy financial infrastructure over the next few years. We see the early signs of this disruption in the form of increasing merchant adoption, transaction volumes and innovative technology development built to leverage the bitcoin blockchain.
Wedbush research notes that bitcoin has become mainstream technology as many existing payments industry players are adopting bitcoin into their businesses. The fact that corporations ranging from “old guard” financial service providers like NCR and First Data to Silicon Valley giants like PayPal and Intuit are integrating bitcoin into their systems is what Wedbush describes as “the ultimate validation of the impact of the technology.”
The research arm’s most thought-provoking conclusion is the linkage between the price of bitcoin technology and the feasibility of the blockchain technology.
We believe 2014 has shown that bitcoin prices are only related to the success of underlying technology as gasoline prices are related to car sales. Although we have been arguing this unbundling for at least a year (link), we find investors continue to (mistakenly) view the price of the bitcoin currency as a forward indicator for the success and impact of bitcoin blockchain technology. We offer the substantial investment activity around bitcoin during a period of declining bitcoin prices as evidence that bitcoin should be regarded as a “fuel” for the blockchain technology and expect that innovation to continue to flourish irrespective of the bitcoin price.
They compare the relationship between bitcoin currency and technology to the price of gasoline and the production of automobiles or the price of electricity to the production of electric cars. More adoption of blockchain technology applications may result in higher bitcoin value just as higher car sales may result in higher gasoline prices. However, the opposite does not hold – that is, lower prices do not predict lower sales.
Wedbush also notes how, in terms of merchant adoption, Bitcoin payment firms Bitpay and Coinbase converted a lot more businesses than Apple Pay.
The securities firm below highlights growth and milestones in the Bitcoin ecosystem.
Popular wallets Blockchain.info and Coinbase saw their number of wallets increase from ~900k to over 2.6 million and 728k to over 1.8 million, respectively. Merchant acquirer Bitpay and Coinbase have now signed up a combined 77k merchants globally, up from 26k collectively since the start of the year. These two forces have contributed to driving a near-doubling of key usage metrics. 2014 saw more than $300 million in venture funds raised for the crypto-currency startups, representing nearly 3x the amount of funding raised for the space in all previous years combined.
The securities firm does not see hacking incidents like at Bitstamp or losses like at Xoom as a major setbacks for the cryptocurrency. Wedbush projects that “bitcoin infrastructure will be enhanced when bitcoin transaction volumes migrate to regulated, robust, liquid and secure venues.”
We expect bitcoin and other blockchain infrastructure to take the biggest step forward in 2015
–Wedbush Equity Research