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1 Why buy Bitcoins? An introduction by Coin4ce January 28 th , 2014

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An introduction to Bitcoin, it's price history and it's future potential.

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Page 1: Why buy bitcoins?

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Why buy Bitcoins? An introduction by Coin4ce

January 28th, 2014

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The world’s first decentralized, peer-to-peer, digital crypto-currency

• Bitcoin is a new type of money that can be sent instantly through the Internet to anyone, anywhere in the world, without restriction, and for free.

• Bitcoins are not controlled by any bank, government, or corporation; rather, Bitcoins are created and transmitted by a network using a peer-to-peer, open source distributed protocol, whose security is based on the immutable mathematical laws of cryptography (digital signatures and collision-resistant hash functions).

• Bitcoin is very similar to gold, since it can be traded, it can be used as a means of saving, it exists in limited quantity (21,000,000), and it is created through a costly computational process called mining.

• For a detailed review of what Bitcoin is, ask for a separate presentation on “What is Bitcoin”.

What is Bitcoin?

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Bitcoin levels the financial playing field on a global scale

• As Bitcoin awareness and acceptance grows, it will help eliminate disadvantages felt by people who currently lack access to a strong banking system and who have no protection from currency fluctuation.

• As of January 23rd, 2014 Bitcoin’s market cap is above $10 Billion USD• In June 2013, the market cap exceeded $1 Billion USD• In June 2011, the market cap exceeded $10 Million USD

• Anyone in the world with internet access can utilize Bitcoin as a payment method.

• An informative, brief and simple video from Bitcoin.org: What is Bitcoin?

Why is Bitcoin important?

When asked about Bitcoin, Bill Gates said

"IT'S A TECHNOLOGICAL TOUR-DE-FORCE"

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Bitcoin: two years later, from controversial to cool

• Many large and popular companies, such as Wordpress, Overstock.com, and Okcupid now accept Bitcoin. There are over 30,000 merchants globally now accepting Bitcoin. This number increases everyday.

• Many prominent Venture Capital funds like Founders Fund, Andreessen Horowitz,

Draper Fisher Jurvetson, and Liberty Ventures have invested in Bitcoin start-ups. • The Bitcoin network generates more than 1,000 petaflops (1 exaflop) of raw

computing power. Tianhe-2, currently the world's fastest supercomputer, located at the National University of Defense Technology in China, generates less than 60 petaflops. Titan at Oak Ridge National Laboraroty is the second largest at under 30 petaflops.

Some Bitcoin Facts!

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Motivations of market participants

Who is using Bitcoin and why?

Investors:

• Long term buy and hold: retail investors and users, institutions entering market, miners

• Professional traders: hedge funds, high net worth individuals, high frequency

• Short term buyers: new traders, reactive to hype cycle

Merchants:

• Bitcoin Price Agnostic: can eliminate currency risk by converting straight to USD/other instantly

• Fundamental Demand: follows user demand rather than price run-ups/speculation

• Easier implementation: no credit review or application process

Individual Users:

• International settlements: remittances to home countries faster and cheaper than wire transfers

• Privacy reasons: Okcupid

• Security: lower risk of ID or CC theft by insecure 3rd party sites or fraudlent vendors

• Micro-transactions: previously cost prohibited

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Merchants

Investors

Individuals

Individual Users: need a better way to send money securely, cheaply, globally, and privately. Unbanked populations worldwide need a secure value transfer system. Some users need to escape monetary pressures/restrictions (i.e. Argentina, Cyprus).

Merchants: need users to pay for goods and services in Bitcoin to save on credit card (or other payment system) fees. Merchants get instant access to a global market: banked or unbanked.

Investors: need fundamental non-speculative demand to carry long term price appreciation. Continued investment fuels user growth and merchant adoption. Users and merchants are also investors when they choose to hold Bitcoins rather than convert them instantly.

The viral loop for market participants

Who is using Bitcoin and why?

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It follows a viral adoption growth pattern

Why you should use Bitcoins

Exponential growth is organic/viral adoption – a natural phenomenon

Source: bitcoincharts.com

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Viral growth on a logarithmic scale

Why you should use Bitcoins

$0.10 USD/BTC

$1000 USD/BTC

From October 10th, 2010, the price of Bitcoin (BTC) went from $0.10 USD/BTC to $1000 USD/BTC (on December 10th, 2013) – That’s an increase of 1,000,000% in 38 months

Source: bitcoincharts.com

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Two main adoptions waves

Google Search Volume for “Bitcoin”

- This is a graph of people searching for “bitcoin” in Google -- The search spikes directly correlate to the price spikes from the previous two slides -

Source: Google Trends

1st Wave

2nd Wave

Early AdoptersTrough of Disillusionment

3rd Wave

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Google Search Volume for “Bitcoin”

January 2011 – Only early adopters know about Bitcoin

June 2011 – 1st widespread adoption wave

The geographic locations of the searches

The first adoption wave happened in the US, Europe, Russia, China, and Australia

Source: Google Trends

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The geographic locations of the searches

Google Search Volume for “Bitcoin”

2nd adoption wave hits US, Europe, Russia, etc – Latam, India, Africa start their 1st adoption wave

January 2012 – Trough of disillusionment, price of Bitcoin hits $2 USD/BTC March 2013 – 2nd adoption wave

Coin4ce

Source: Google Trends

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The geographic locations of the searches

Google Search Volume for “Bitcoin”

Adoption is currently becoming more widespread

Many countries that previously never had an search volume are starting to learn about Bitcoin

Source: Google Trends

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January 2011 – Only early adopters know about Bitcoin

The price evolution of Bitcoin

Satoshi’s paper is released in 2009, Bitcoin starts trading at Mt.Gox in September 2010

Source: bitcoincharts.com

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June 2011 – 1st widespread adoption wave

The price evolution of Bitcoin

Bitcoin rises to $30 USD/BTC from $1 USD/BTC in three months.

$30 USD/BTC

Source: bitcoincharts.com

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December 2011 – The trough of disillusionment

The price evolution of Bitcoin

The price of Bitcoin hits $2 USD/BTC, rebounds to $7 USD/BTC

$2 USD/BTC

$7 USD/BTC

Source: bitcoincharts.com

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March 2013 – 2nd adoption wave

The price evolution of Bitcoin

After recovering from $2 USD/BTC, there’s a long period of steady demand-driven appreciation to $20 USD/BTC before it goes parabolic in it’s second adoption wave

Back to $10 USD/BTC Back to $20 USD/BTC

2nd adoption wave – $250 USD/BTC

Source: bitcoincharts.com

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Fall 2013 – 3rd adoption wave

The price evolution of Bitcoin

After closure of Silk Road, price goes from $100 USD/BTC to over $1000 USD/BTC, led in large part by demand in China and favorable sentiment from the US government

Silk Road closure, $100 USD/BTC

$1000 USD/BTC

Source: bitcoincharts.com

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Number of 1st-time Bitcoin downloads from Sourceforge

The third adoption wave is cooling

-24

**Note this is only 1st-time users downloading the Bitcoin client, this does not reflect how much current users are using Bitcoins**

Source: sourceforge.net

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Assuming Then = Now; Run-ups followed by cool down period

Sentiment based cool-down analysis

First Wave - run up to ~$30Cool down to ~$2-8 rangeDrop off ~70-90%

Second Wave - run up to ~$250Cool down to ~$65-100 rangeDrop off ~60-75%

Third Wave - run up to ~$1200Cool down to ~$500-900 rangeDrop off ~25-60% (so far)

Source: bitcoincharts.com

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What’s different this time around?

Does Then = Now?

Then:

• Bitcoin was controversial

• Regulatory uncertainty

• No VC backing

• Just US, EU, Russia, Australia

• Just techies, traders, cryptos, etc.

• 1st/2nd education wave

Now:

• Bitcoin is cool

• FINCEN’s regulation is partially clear

• Major VC backing

• Starting to go global: Latam, Africa, Asia

• Starting to go mainstream in USA

• 3rd education wave

Conclusion: “Then” does not equal “now”, and so ….

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Anything under $1000 USD/BTC? Now?

What’s a fair price to start buying?

Long term upside for Bitcoin is very bullish:

o Multitude of vested interests: major VCs, heavy investment, confidence

o Better infrastructure: the ecosystem continues to evolve and improve with more start-up incentives

o Higher word-of-mouth: the network effect causes accelerated adoption

o More educated: users and new countries creating demand

o Merchant adoption: is at an all time high and growing rapidly

o Track record: Bitcoin has a 4 year track-record of consistent growth

How high could Bitcoin go in the long run?

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Caveats to an aggregate analysis

What’s a fair price to start buying?

The market cap of Bitcoin is only ~$10 Billion USD

- Very small in the world of finance -

- Government statements and other major news stories can influence short-term prices significantly -

- Impossible to predict exact shocks from these items -

Over the long run, Bitcoin has

- Grown virally, and … -

- Returned to its fundamental value based on utility -

So what could be the long term value of Bitcoin?

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Value Transfer System = Global Currency Markets

Long Term Value of Bitcoin

o Daily global FX turnover is $4 trillion USD as of 2013

o Daily Bitcoin turnover is $100M USD

o To capture 1% of the Forex markets…

o Bitcoin turnover would have to increase to $40 billion USD…

o This equals a 40,000.00% increase from today

Source: http://bit.ly/1a3n6g3

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Store of Wealth = Money Supply, Assets, Gold

Long Term Value of Bitcoin

Global known gold reserves = $7.35 Trillion USD

Total fiat money supply globally = $68.34 Trillion USD

Total known debt globally = $136.89 Trillion USD

Global other assets (stocks, real estate, etc.) = $198.1 Trillion USD

Total estimated Value of Global “Wealth” = $410 Trillion USD

Current market cap of Bitcoin = $10 Billion USD

1% parity means Bitcoin’s market cap increases to $4 Trillion USD, ~40,000.00% from today

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What Bitcoin price does that correspond too?

Long Term Value of Bitcoin

12.26 of 21 million coins exist today

In 2016 there will be 15 million coins in circulation • in 2025 there will be 20 million coins in circulation

At 1% parity in 12 years, 2025, we have $4 Trillion/20 Million = $200,000 USD/BTC

At 1% parity, the price of Bitcoin could be $200,000 USD/BTC

o At 0.1% parity, the price would be = $20,000 USD/BTCo Today’s price = under $1000 USD/BTCo The price 38 months ago was $0.10 USD/BTC

What is the time horizon?

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What is the time horizon?

1st wave – Oct, 2010: $0.1 USD/BTC July, 2011: $30 USD/BTC; that’s 300x in 9 months

2nd wave – Dec, 2011: $2 USD/BTC April, 2013: $250 USD/BTC; that’s 125x in 17 months

3rd wave – Sept, 2013: $100 USD/BTC December, 2013: $1000+ USD/BTC; that’s 10x in 3 months

??? 4th wave coming soon ???

Long Term Value of Bitcoin

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Value of the technology

Long Term Value of Bitcoin

• One thing that is important to consider is that the technology, innovation and implications behind Bitcoin are fascinating.

• Many people focus too much on the price and not how world changing the Bitcoin protocol can become.

• Take a moment to read this article from Marc Andreessen, co-founder of one of the most successful Venture Capital firms of all time:

• “Why Bitcoin Matters”

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Threats to infrastructure: hacks, DDOS attacks, etc.

Risks facing Bitcoin

Leads to a lack of confidence.

o Growing pains: as more companies develop Bitcoin technologies, errors/bugs could be made

o Nature of Bitcoin attracts hackers: new technologies attract top computer programmers, both good and bad

o Lack of liquidity and critical mass in new geographies

Historic hack at Mt.Gox on June 19th, 2011 left BTC at 1 penny after a hacker stole credentials from a Mt. Gox auditor

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Government Intervention: FINCEN has spoken and…

It isn’t vanquishing Bitcoin, but will keep a close eye on it.

Could it?

o To shut down Bitcoin, you’d have to shut down the internet

o Governments aren’t sure how to handle Bitcoin, which can make people uneasy

o Germany makes Bitcoins held for more than one year exempt from capital gains tax!

Bart Chilton, CFTC Commissioner

Risks facing Bitcoin

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Moving into unknown technological territory

Core Bitcoin technology unknowns:

o A 1 exaflop+ distributed computing system has never been seen before

o Current block chain size is 8GB … at 100GB, 1TB?

o Shadow hashes, 51% attack

o Quantum computing: D-wave sells first to Lockheed Martin

D-wave Qubit Quantum Computer

Risks facing Bitcoin

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“Alt”(alternative) Coins are Rising – over 100 exist

o Technology evolves, trying to replace older versions with improvements

o The “concept” is here to stay, which iso math based currencies and

decentralized protocols

o What are the other crypto currencies?

o Litecoin is the second largest and was developed by Charles Lee of M.I.T and Google

Risks facing Bitcoin

Source: coinmarketcap.com

As of January 24th, 2014

Currency Code Value of money supply

Bitcoin BTC ~$9.88 billion

Litecoin LTC ~$513 million

Peercoin PPC ~$95 million

Nxt NXT ~$70 million

Mastercoin MSC ~$65 million

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And advise clients on what to do and when …

Coin4ce.com will monitor the risks

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Greenfield opportunity in Latam for Bitcoin

Coin4ce will make it easy for people and businesses in Latam to buy, sell, and use Bitcoin. Our services will:

• allow merchants to easily accept Bitcoin as a payment• allow users to instantly buy or sell bitcoins via local banking / payment methods• connect Latam to the global Bitcoin eco-system• set the stage for mainstream adoption across the region

There are 590 million people in Latin America, ~67% Spanish speaking, ~33% Portuguese speaking

Instant Transactions | Wallets | Merchant Services | Investments

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Our Team

Adam Stradling: Founder and CEO • Former Co-founder and COO of Tradehill, Inc – largest US-based Bitcoin exchange• Founder of 4CE – 5 years exp in BFSI consulting and recruiting, Chile based• Co-founder of work4ce.me – Funded recruiting technology solution, Start-Up Chile

Philippe Camacho: Co-founder and CTO• PhD in Computer Science, U of Chile – Cryptology and Computer Security • Software Engineer and Agile Coach – 5 years experience building software solutions• Cryptography researcher, published in: RSA, Latincrypt, and more

Jacob Lundberg: Co-founder and Advisor• Equity Research Associate, Credit Suisse, New York• Notre Dame MBA (Investments focus) – analyst at the Investment Office• Lived / worked in Chile three years - Hispanic Studies undergraduate degree

Antonio Vera: Software Engineer• PhD in Computer Science, U of Caen,

France – Analysis of Algorithms

Austin DeLonge: Operations Manager• 5 years experience in FinTech

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Brokerage, storage and management

Brokerage:

• Consulting: Why should I buy Bitcoins?

• Access: How do I buy Bitcoins?

• Trust: Who do I give my money to and why?

Coin4ce Services

Storage:

• Education: How do I safely access and store my bitcoins?

• Technology: What’s the technology behind the system?

• Protection: How do I know I’m protected from hackers, loss, damage, etc?

Management:

• Advisory: As things change how do I know what to do?

• Risk Management: Can I hedge?

• Liquidity: How quickly can I move in and out of Bitcoin? What is the associated cost?

Currently, there is no clear, consistent, and trustworthy source for management and advice

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Bringing Bitcoin to Latin America!

Adam Stradling: Founder and CEO | [email protected] Camacho: Co-Founder and CTO | [email protected]

Email us to learn more