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Bitcoin Investment Trust (GBTC)
Initiating with OUTPERFORM and $40 Price Target; Fuel for
Promising Technology in Early Days of Disruption

July 9, 2015
Price

$30.60

• We believe bitcoin and its associated blockchain technology have the
potential to disrupt the existing financial infrastructure over the next few
years. We believe the value of the bitcoin currency (BTC) will benefit from this
trend and therefore are initiating coverage of GBTC with an OUTPERFORM
rating and $40 price target.

Rating

• GBTC is a NASDAQ OTCQX listing of the Bitcoin Investment Trust which
holds BTC and serves as a proxy for the price of BTC at a 1/10 ratio. We
expect GBTC to trade at a slight premium to BTC as the publicly traded liquidity
benefit is only somewhat offset by the 2% management fee.

$40

• We see BTC as a financial instrument the likes of which has not previously
existed, which requires a new valuation approach. We see BTC as equity in a
payment network, much like Visa, MasterCard and PayPal, which we also cover.
However, since BTC does not generate cash flow like equity, we use a commoditylike valuation approach that values each BTC as a “packet” in limited supply that
fuels the bitcoin network. The more the bitcoin network is utilized for current and
future applications, the more demand for the packet. By aggregating the utilization
of the various applications, we arrive at our $400 BTC price target, which translates
to $40 per share of GBTC. This implies ~$6 billion market capitalization, which we
would also describe an option on bitcoin supplanting some payment volumes from
V, MA, PYPL and WU, who combine for >$300 billion in market cap.
• We believe much of the demand for BTC will come from payment applications
where bitcoin offers significant benefits over alternatives - online payments
(especially cross-border), remittance and micro payments. We believe bitcoin
can reduce the cost of online payments from the current 3-8% to <0.5% and for
remittance from 5-10% to <1%. Previously impractical, electronic payments of <$1
could broadly change content monetization on the web, possibly supplanting ads.
• We see some potential for BTC as a banking alternative in developing or
distressed economies, as is becoming evident to citizens of Greece unable to
access or transact in their government currency. We also see possible
applications for more far reaching applications such as facilitating machine-tomachine transactions (“Internet of Things”) and as an “anchor” for other blockchain
technology applications in the securities industry, real estate sector and beyond.
• Growth in bitcoin usage evident in the metrics. With online payments being the
early application, bitcoin adoption rivals much-higher-profile well-funded efforts
such as Apple Pay and Visa Checkout. Popular wallets Blockchain.info and
Coinbase have exceeded more than 5 million users and merchant acquirers Bitpay
and Coinbase have signed up more than 80k merchants globally.

OUTPERFORM
12-Month Price Target

Gil Luria
(213) 688-4501
gil.luria@wedbush.com
Aaron Turner
(213) 688-4429
aaron.turner@wedbush.com

Company Information
Shares Outst (000s)
Market Cap (M)
Units Outst – BTC
(000s)
Market Cap – BTC (M)

1,382.0
$42.3
14,363
$3,884

Company Description
The Bitcoin Investment Trust (BIT) is a
private, open-ended trust that is invested
exclusively in bitcoin and derives its value
solely from the price of bitcoin. BIT was
launched in 2013 by Grayscale LLC, a
wholly-owned subsidiary of SecondMarket
Holdings, Inc.

Financial Technology

• We see investments by venture capital and engineering talent as an
indication of the potential for bitcoin. More than $832 million of VC funds have
been invested in bitcoin companies, mostly over the last twelve months, not
including the hundreds of millions invested in mining equipment.
• Incumbent payments and financial industry participants have been embracing
bitcoin and incorporating bitcoin into their businesses. We believe the
investment and integration (not just acceptance) of bitcoin and blockchain
technology by companies such as PayPal, First Data, Intuit, NCR, Nasdaq, NYSE,
Citi, Goldman Sachs, UBS, Barclays and more serve as validation for the potential
of the technology.
• Risks to our price target include the fact that BTC could very well go to zero due to
lack of cash flow, increased government regulations, lack of consumer adoption,
rise of superior alternative crypto currency, failure of the protocol, and cyber hacks.

Source: Thomson Reuters

Wedbush Securities does and seeks to do business with companies covered in its research reports. Thus, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision. Please see page 22 of this
report for analyst certification and important disclosure information.

Disclosures
1. At the time of publication, Wedbush Securities owns a nominal amount of BTC and GBTC and has invested in bitcoin-related
companies.
2. Much of the analysis on the following pages is an update to previously published research.
Other mandatory disclosures appear in the back of the report.

Additional Analysis
Valuation
Our approach is to use a commodity-like valuation that values each BTC as a “packet” in limited supply that fuels the bitcoin network.
The more the bitcoin network is utilized for current and future applications, the more demand for the packet. By aggregating the
utilization of the various applications (Figure 1) we arrive at our $400 BTC price target which translates to $40 per share of GBTC.
We start with the supply which is predetermined by the bitcoin software to create new “shares” in order to compensate the network
node operators (i.e. miners). Of those, the relevant portion is the portion neither dormant nor held for investment. Those bitcoin cannot
support economic activity and are therefore excluded from the relevant supply. We expect that proportion to fall in proportion as
economic activity picks up and the number of bitcoin available to support applications to grow.
We then look at the four current applications for bitcoin – online payments, remittance, micro transactions and “banking” for the
unbanked – as well as a catch all other category that includes black market activity and any other future application such as machine to
machine (Internet of Things) and anchoring other blockchains.
For each of these applications we attempt to forecast demand by looking at the total addressable volumes and potential share bitcoin
can achieve over the next 10 years. For micro transactions we use the total internet advertising market as a proxy for the size of the
opportunity, considering the possibility direct monetization of content will help supplant the internet advertising model. We assume in
our forecasts 10-20% bitcoin penetration for all these various opportunities by 2025.
In order to assess the amount of bitcoin required to support this level of activity we apply different levels of velocity. For example, if a
consumer replenishes their bitcoin wallet every month that would equate to 12x annual velocity for their bitcoin. We apply velocity levels
ranging from 5.5 for unbanked and other applications (current velocity of bitcoin) and 12 times for payments and remittance.
The ultimate calculation takes the total bitcoin required to support these applications in 2025 divided by the number of bitcoin available
for economic activity discounted to the current period by a discount rate. We use a very high 40% discount rate to illustrate the
uncertainty regarding these outcomes ten years out.

Gil Luria (213) 688-4501

Bitcoin Investment Trust | 2

2 0.72 12.281 504 625 4.5 14.940 2017E 2.34% 0.001% 0.50% 10.0 59.8 77.2 $ 267.74 0.04 0.4 0.71 0.01 0.5 $ 3.295 2.7 0.78 $ $ $ $ $ $ 49.8 $ $ $ $ $ 228.22 131.17% 0.458 2025E 5.1 0.01% Capacity Supported by Bitcoin Online Payments Remittances Micro Transactions Unbanked Other $ $ $ $ $ 0.39 108.30 0.69 0.92 10.50% 14% 86% 2021E 18.75% 6% 94% 2025E 20.6 122.500 435 540 4.92 13.63 5.088 18.16% 0.00% 10.1 6.64% 2.12 12 12 12 6 6 $ $ $ $ $ $ 27.785 612 760 5.03 0.18 12 12 12 6 6 $ $ $ $ $ $ 0.04 0.435 1.69 9.3 $ 571.7 1.750 96.725 457 567 4.4 $ $ $ $ $ 1.74 28.0 7.88% 4% 96% 9.7 $ 1.840 .249 2022E 4.9 3.982 $4.00% 10.24% 0.92% 2.50% 18.00 0.1 162.05 0.4 32.1 0.4 0.017 555 689 4.24 32.5 148.02% 0.16% 2.025 $7.63 12.528 $11.3 116.503.04 5.317 709 880 5.03 0.8 $ $ $ $ $ 45.375 92.5 $ 52.29 1.01% 0.08 12 12 12 6 6 $ $ $ $ $ $ 0.00% 17.32% 1.2 28.000 Total Bitcoin in Circulation (End of Year) % of total Held for Investment or Dormat % Held as Working Capital % 2015E 14.50 2.386 2024E 5.08% 0.02 0.200 14.32 0.150 12.5 131.11 0.54% 0.8 $ 9.00% .16% 0.26 12 12 12 6 6 $ $ $ $ $ $ 12 12 12 6 6 39.46% 1.5 $ 1.06 59.28% 5.19% 8% 92% 2024E 19.27% 0.20 2.08% 0.57 22.926.532 26% 74% Bitcoin Available for Transactions Demand $ Billion Online Payments Remittances Micro Transactions Unbanked Other Growth Rates Online Payments Remittances Micro Transactions Unbanked Other 15% 5% 5% 3% 3% 15% 5% 5% 3% 3% 15% 5% 5% 3% 3% 15% 5% 5% 3% 3% 15% 5% 5% 3% 3% 12% 5% 5% 3% 3% 12% 5% 5% 3% 3% 12% 5% 5% 3% 3% 12% 5% 5% 3% 3% 12% 5% 5% 3% 3% 12% 5% 5% 3% 3% 0.83% 5.350 $9.9 3.750.2 Assumed Annual Velocity Online Payments Remittances Micro Transactions Unbanked Other Bitcoin Monetray Base Required Online Payments Remittances Micro Transactions Unbanked Other Total BTC Monetary Base Required 12 12 12 6 6 $ $ $ $ $ $ 0.00% 20.718.062.454 2.6 37.437.960 2.73% 0.06% 12% 88% 2022E 19.75% 24% 76% 2016E 15.778.14 0.80 1.23 6.64 $ 1.250 78.03% 0.705 1.01% 0.000 87.786 2.03 231.03% 0.059 2019E 3.04 0.14 0.30 6.999 2018E 2.28% 5.991 2.7 596.36 46.4 12.000 75.125 89.64% 2.00% 20.Figure 1: Valuation Supply 2014A 13.05 1.687.500 93.8 $ 22.5 68.67% 1.78 69.03% 0.007.8 $ $ $ $ $ 3.13% 20% 80% 2018E 17.56% 7.74 14.6 55.6 12.8 1.829 2015E 1.984 480 595 4.0 253.379 583 724 5.6 $ $ $ $ $ 8.00% 22% 78% 2017E 16.747 675 838 5.25 12 12 12 6 6 $ $ $ $ $ $ 3.578.32% 1.08% 0.250 90.750 84.275 15.01% 0.0 184. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 3 .28% 17.618 2.64% 8.21 1.4 $ $ $ $ $ 595.638 17.08% 0.703.07 0.359.04% 0.4 $ 1.500 68.500 81.375 14.81 Valuation Bitcoin $ Monetary Base Required / Bitcoins Available for Transactions $8 $16 $270 $262 $409 40% 7/7/2015 1 2 3 4 5 6 7 8 9 10 $35 $83 $184 $419 $978 $1.12% 9.141 2.38% 16% 84% 2020E 18.50 0.3 $ $ $ $ $ 332. Inc.70% 4.7 0.500 19.01 0.50 12 12 12 6 6 $ $ $ $ $ $ 8.125.184 2021E 3.58 12 12 12 6 6 $ $ $ $ $ $ 1.8 184.744.955 744 924 5.23 0.846.624 529 656 4.9 159.62 2.56 78.164.07 0.04% 0.05 4.24 0.18 $ $ $ $ $ 0.6 15.50% 7.06 0.2 $ $ $ $ $ 478.3 $ $ $ $ $ 20.90 33.239 643 798 5.031.032.44 12 12 12 6 6 $ $ $ $ $ $ 0.02% 0.01 0.09% 0.60 2.52 176.857.3 1.120 2020E 3.884 2016E 1. Wedbush Securities.14 0.54 15.81 2. Bitcoin Share Online Payments Remittances Micro Transactions Unbanked Other 0.7 434.27% 0.88 10.63% 10% 90% 2023E 19.375.0 $ $ $ $ $ 102.390.043.600 16.04 0.173.846 2.7 $ 125.32 0.09% 0.00% 18.08% 1.5 0.322.553.003% 0.8 2.8 327.3 6.35% 2.4 1.6 144.50% 7.305 1.39% 8.00 0.72 12 12 12 6 6 $ $ $ $ $ $ 19.800 13.825 2014A 1.317 2023E 4.343.40 15.000 11. BTC Price Excess Value Based on Future Demand PV $USD/BTC Discount Rate <= present value of the price per BTC required to support the expected level of economic activity in 2025 Source: Company data.2 Total $ 0.800 17.54% 0.1 26.32% 4.25% 18% 82% 2019E 17.5 3.568 1.10 12 12 12 6 6 $ $ $ $ $ $ 0.406.

000 0. machine-to-machine. etc.0x 11. Inc.9x 26.000. The broad set of outcomes means any small change in perception regarding the likelihood of the best case outcome drives significant changes to current valuation.862 6. Wedbush Securities.8x 14.000.01%.1x 18. The negative outcome would be if bitcoin was to be overtaken at any point by a superior altcoin or somehow succumb to an unforeseen vulnerability.6x 10.000 3.655 104. This is different than most other financial instruments that have a far narrower range of outcomes. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 4 . and the positive outcome would represent the ultimate upside scenario in which bitcoin became the global working capital of trade. remittance.4x 22. which in turn create more stable values (Figure 4).816 9.Overtaken by another coin .792 78.6x 13.) "Internet" Outcome .4x 10.98% $200 $1.9x 11.4x 8. or >30% in today’s prices. Figure 3: Comparable Valuations ($M) P/E Visa Mastercard American Express PayPal Discover Financial Western Union Square Stripe Bitcoin Blackhawk Network Green Dot MoneyGram Ticker V MA AXP PYPL DFS WU BTC HAWK GDOT MGI Market cap $132.g.Broadly made illegal with strict enforcement "PayPal" Outcome .Bitcoin Has a Much Wider Range of Outcomes than Comparable Stocks We believe another view of bitcoin’s value is as a weighted average of potential outcomes that can range between $0/bitcoin to $1.9x 16. that could drive a $100 change in current valuation.340 25.273 988 459 2015 25.000/bitcoin (Figure 2).000 5.7x 12.00% $0 $400 49. Inc.7x 11.Fatal flaw uncovered . micro transactions.0x 2016 22. Said otherwise.8x Source: Company data.Bitcoin becomes global working capital of trade ($20 trillion monetary base) $/BTC Probability Probability Weighed $0 50.Specific use cases take hold (e. if market perception of the likelihood of the best case outcome changes by 0.807 2.9x 13.775 44. Figure 2: Bitcoin Valuation Framework Outcome "Napster" Outcome .02% $200 Probability-weighted outcome $400 Source: Wedbush Securities.

Gil Luria (213) 688-4501 Bitcoin Investment Trust | 5 .500 3.000 5. Wedbush Securities.000 3.Figure 4: Range of Outcomes Comparison between Bitcoin and Visa 1.000 BTC V 1.500 2.000 500 0 Source: Company data.000 2.000.000 4.500 1.500 4. Inc.

Figure 6: Cross Border Money Remittance Fees Western Union revenue Consumer-to-Consumer Consumer-to-Business Business Solutions Cross Border Western Union MoneyGram EEFT XOOM Total Public 2014 4. Figure 5: Global Payment Card Fees Global Credit Volume Global Debit Volume US Credit US Debit 2013 $8.7 billion Source: World Bank.486 2.567 4.486 $82.5 2% 6. Wedbush Securities.0 4% 122 5.736 Merchant Discount Rate 2% 1% 2% 1% Total Fees Generated ($ billion) $172 120 50 22 $292 $72 Source: Nilson.486 599 405 Revenue Volume Overall ($millions) ($billions) blended rate 4.5 3% 523 12.Bitcoin Technology Could Influence a Wide Range of Payment Applications We believe the best approximations of the magnitude of shorter-term opportunity for bitcoin are the $300+ billion payment card fee market (Figure 5) and the $20+ billion cross border money remittance fees (Figure 6). Inc.274 42.0 5% 1.0 billion $19.970 2.250 Total Global Total US $20.405 142 5% Overall Estimated 2014 Cross Border Remittance Volume Overall Revenue Generated from Cross Border Remittance $436. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 6 . Company data.597 11. Inc. Wedbush Securities.

9 1.600 2013% 100.700 1.2 3.211.5% Source: Bureau of Economic Analysis.300 21.4 2.174.200 1.3 13. we see a potential role for bitcoin in the emerging area of machine-to-machine communication (Internet of Things). collections fees. In addition to the disruption of decentralized trust. and related activities Securities.500 998.6 20.900 519.5 0.988.700 186. entertainment.154.9 4. accommodation.1 6. and technical services Educational services.1 8. scientific.500 1. escrow.206.300 2.2 7.600 695.400 42.1 11.7 12. and leasing Finance and insurance Federal Reserve banks.800 224.1 1. fishing.300 2. Inc. we believe bitcoin and Ethereum may become enabling technologies. insurance. except government Government Sum of Trust-Based Service Sectors As a percentage of GDP 2013 16. scientific. 9). Although payment transaction fees are the most obvious fees that could be reduced by using bitcoin technology.028. rental.0 5.900 2. and food services Other services. and other financial vehicles Real estate and rental and leasing Real estate Rental and leasing services and lessors of intangible assets Professional and business services Professional.400 621.The Scope of Bitcoin Technology Could Transcend Payments We see the scope of disruption as substantial considering 20% of US GDP is generated by industries whose main function is as a trusted 3rd party (Figure 7).400 276. trust management fees.6 1.400 481.2 $3.7 2.700 1. and hunting Mining Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and warehousing Information Finance. foreign exchange fees. etc.3 2.981. Figure 7: Portion of US GDP from Trust-Based Industries Value added (Millions of dollars) Gross domestic product Agriculture.0 1.800 1. and technical services Legal services Computer systems design and related services Miscellaneous professional.100 226.700 369. commodity contracts. and investments Insurance carriers and related activities Funds.800 421.4 4. and social assistance Arts.768. trusts.3 1.700 619.500 971. credit intermediation.9 1. Some early examples of applications may be using payments to reduce distributed denial of service (DDoS) attacks or spam emails. forestry. real estate.2 3.300 223. We believe M2M communication will require mechanisms for prioritizing resources and allowing internet connected devices to transact.606. (Figures 8. Wedbush Securities.200 3. health care.7 3. we believe the use of the blockchain asset ledger and bitcoin protocol could also challenge financial services fees such as deposit fees. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 7 .600 439.2 13.8 2. Since there are no restrictions on bitcoin wallets being owned and operated by a device. recreation.0 11.380.8 6.381.400 779.600 234.

brokerage and underwriting fees and commissions Venture capital revenue Net servicing fees Net securitization income Insurance commission fees and income Net gains (losses) on sales of loans Net gains (losses) on sales of other real estate owned Net gains (losses) on sales of other assets (except securities) Other noninterest income Total noninterest expense Salaries and employee benefits Premises and equipment expense Other noninterest expense Amortization expense and goodwill impairment losses Securities gains (losses) Income (loss) before income taxes and extraordinary items Applicable income taxes Extraordinary gains (losses). net Net income (loss) attributable to bank Net income (loss) attributable to noncontrolling interests Net income (loss) attributable to bank and noncontrolling interests Net charge-offs Cash dividends Retained earnings Net operating income 2014 ($ in 000's) 469776 352440 22495 4612 5346 68898 10293 2909 2783 47126 23934 5691 2166 12548 2787 422650 29739 246723 32522 34086 22710 4748 11895 2641 1710 1712 11256 60 8992 1312 3158 11885 -287 1748 119282 421904 189673 44759 179803 7669 3201 220930 67493 -116 152685 635 153321 39489 90212 62473 151154 % of total Note 34% 17% Includes payments revenue Source: FDIC. Inc. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 8 . Wedbush Securities.Figure 8: Aggregate US Banks Non Interest Income Total interest income Domestic office loans Foreign office loans Lease financing receivables Balances due from depository institutions Securities Trading accounts Federal funds sold Other interest income Total interest expense Domestic office deposits Foreign office deposits Federal funds purchased Trading liabilities and other borrowed money Subordinated notes and debentures Net interest income Provision for loan and lease losses Total noninterest income Fiduciary activities Service charges on deposit accounts Trading account gains and fees Interest rate exposures Foreign exchange exposures Equity security and index exposures Commodity and other exposures Credit exposures Investment banking. advisory.

280.0 35% 6.0 Source: Company data.0 12% 4.655.Figure 9: Wells Fargo .381.0 16% 5.0 8% 1.349.133.161.0 3% 2. Wedbush Securities.Noninterest Income ($M) FY2014 Trust and Investment Fees Mortgage Banking Deposit Service Charges Other Banking Fees Net Gains from Equity Investments Card Fees Insurance Net Gains from Trading Other Noninterest Income Total Noninterest Income 14.820.0 4% 1.380. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 9 . Inc.431.0 6% 3.0 11% 2.050.0 5% 40.

Figure 11: Coinbase Number of Wallets Source: Bitcoin Pulse. Inc.info. In fact.Growth in Bitcoin Usage Evident in the Metrics We see evidence of bitcoin technology adoption in a multitude of metrics (Figures 10-13). Wedbush Securities. Wedbush Securities. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 10 . Popular wallets Blockchain. if merchant adoption is a metric for success. Bitpay/Coinbase have added significantly more merchants than Apple Pay.info and Coinbase have exceeded a combined 5 million wallets and merchant acquirers Bitpay and Coinbase have now signed up more than 80k merchants globally. These two forces have contributed to driving a near doubling of key usage metrics. Figure 10: Blockchain. Inc.info Number of Wallets Source: Blockchain.

Wedbush Securities.info.info. Wedbush Securities.info Wallet Number of Transactions per Day Source: Blockchain. Inc. Inc.Figure 12: Number of Transactions excluding Popular Addresses Source: Blockchain. Figure 13: Blockchain. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 11 .

Wedbush Securities.development hours. mostly over the last twelve months. We believe nearly $832 million of venture funds have been invested in bitcoin companies. We found nearly 5. We see this as the best indication of the potential for bitcoin as these developers allocate their most valuable resource . which does not include the hundreds of millions we believe have been invested in network node (mining) equipment.Investment of Venture Capital and Engineering Time Also Illustrate Growth We see several signs that entrepreneurs and developers are swarming to the bitcoin platform (Figures 14-16). Figure 15: Venture Funds Raised by Year ($ millions) $400 $362 $373 2014 1H 2015 $350 $300 $250 $200 $150 $95 $100 $50 $2 $0 2012 2013 VC Funds Raised (millions) Source: CoinDesk. Figure 14: Total Venture Funds Raised to Date with Top 15 Recipients ($ millions) $900 $832 $800 $700 $600 $500 $400 $300 $200 $121 $106 $100 $76 $40 $40 $37 $33 $31 $29 $28 $21 $21 $15 $15 $14 $0 Source: CoinDesk. Inc. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 12 . which was nearly double from the previous six months. Inc.500 Github repositories. double six months ago. Wedbush Securities.

Figure 16: Github Number of Created Repositories Source: Bitcoin Pulse. Wedbush Securities. Inc. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 13 .

Figure 17: Companies Accepting or Integrating Bitcoin Payments Companies investing in Blockchain Technology Goldman Sachs NYSE NASDAQ UBS Citi Barclays Overstock.com Wedbush CME Companies incorporating Bitcoin payment options PayPal/Braintree Stripe NCR Square Intuit First Data Global Payments Toshiba. Wedbush Securities. VisualTouch Companies accepting Bitcoin payments Microsoft Dell United Way Wikipedia Wordpress Expedia Dish Overstock American Red Cross Time Magazine Mozilla Newegg Reddit Soundcloud Zynga Subway (very few) Virgin Galactic Sacramento Kings Gyft TigerDirect Chicago Sun-Times OKCupid Rakuten (via subsidiary Rakuten Super Logistics) OpenSSL Khan Academy Source: Company data. Inc. We believe the integration (not acceptance) of bitcoin by a range of companies from old guard NCR and First Data to Silicon Valley leaders PayPal and Intuit serves as the ultimate validation of the impact of the technology.Adoption of Bitcoin Technology by Incumbent Payments Companies Indicates Promising Role Incumbent payments industry participants have been embracing bitcoin and incorporating bitcoin into their businesses (Figures 17-18). Gil Luria (213) 688-4501 Bitcoin Investment Trust | 14 .

Wedbush Securities. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 15 . Inc. 2014) Source: Diebold.Figure 18: Chart in Diebold’s Investor Day Presentation (December 10.

Social. Timeline May be Extended Like other new major technology disruptions (e.g. Wedbush Securities. Figure 19: Chasm of Adoption and Trough of Disillusionment Source: CoinDesk. Inc. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 16 .” making the timing of broader implementation of the technology still at least 1-3 years away.Like Any Other Disruptive Technology. we believe the disruption from bitcoin will take longer than expected but have an even more profound impact than anticipated.. We believe bitcoin is going through the “adoption chasm. Mobile).

50 12 $2. however not a 1-to-1 relationship. but the opposite does not hold – lower gas prices (bitcoin currency) do not foreshadow fewer car sales.50 6 U.Relationship between BTC and Blockchain Technology Similar to Gasoline and Cars We see the relationship between BTC and Blockchain technology as analogous to the historical price of gasoline to the production of the internal combustion engine (Figure 20). Vehicle Sales $4. vehicle sales Retail Gasoline Price (Constant 2014 $/gal) $1.00 U.00 10 8 $1. Wedbush Securities.50 14 $2.00 4 $0. That is to say – higher car sales (blockchain tech applications) will drive higher gasoline prices long term.50 2 0 1931 1935 1939 1951 1955 1959 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 $0. So we see value in the currency and a relationship between the value of the currency and the proliferation of applications of its underlying technologies. parking sensors) flourish even as the fuel they relied upon fluctuated in price.00 Source: EIA.00 20 18 $3. In both these situations. Inc.S. Figure 20: Price of Gasoline to the U.S Vehicle sales (millions) Price per Gallon (infaltion adjusted) 16 $3. the innovations (GPS. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 17 .S. satellite radio.

000. P2P) is intermingled with trading activity.000.000 70 1. and payment processors have the ability to hedge real-time. Inc. As “first wave” bitcoin applications such as remittance. We further believe traders actually value volatility as they continue to gravitate to bitcoin trading as an active 24/7 market uncorrelated with other asset class returns.600.000. However. we expect them to make up an increasingly large proportion of overall transaction volumes. The connection between volatility and trading volumes is well established in equities (Figure 21) and is beginning to emerge in bitcoin trading (Figure 22). Volatility in the price of bitcoin should not impede retailer acceptance of bitcoin.000 10 200. in itself. both are already free from volatility risk. as the potential for bitcoin is being constantly measured by the market in light of rapid technology development and unpredictable regulatory constraints.000.e. Since economic activity (sale of goods & services. Just as consumers carry a certain amount of cash in their physical wallets in spite of commonly using payment cards.000.Volatility a Feature as Much as an Impediment Some of the above analysis implies volatility in the price of BTC may not go away anytime soon. Wedbush Securities. just as companies currently shield themselves from government currency volatility.000. Since retailers have the choice of receiving the same dollar amount as the items are listed for into their bank account.000. mining equipment) and iterative refinements of the bitcoin code.800.000 20 400.000 60 1.000 40 BATS TRADING VOLUME (Monthly Avg) 800. CBOE.. consumers may hold a certain amount of bitcoin in a digital wallet for online transactions. and have that balance replenished by the wallet provider out of their bank account.000 1. we do not believe this volatility.000.000 50 1. In the meantime. investment and trading have “paid” for the hundreds of millions of network equipment (i. as merchants and payment processors are entirely shielded. we believe the trading activity is helping create the network capacity and monetary base to support the future economic applications of bitcoin. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 18 .000.400. We believe that other payment applications will be shielded from volatility through futures contracts facilitated by the burgeoning bitcoin derivative market. online payments and micropayments mature. money remittance.200. We expect wallet providers such as Coinbase and Circle to work on solutions that will allow consumers (as opposed to investors/traders) to hold only a limited amount of bitcoin in their wallet and still be able to benefit from the simplicity of using bitcoin and incentives retailers will share with them as they reduce the cost of payment acceptance.000 0 01/31/2007 05/31/2007 09/28/2007 01/31/2008 05/30/2008 09/30/2008 01/30/2009 05/29/2009 09/30/2009 01/29/2010 05/31/2010 09/30/2010 01/31/2011 05/31/2011 09/30/2011 01/31/2012 05/31/2012 09/28/2012 01/31/2013 05/31/2013 09/30/2013 01/31/2014 05/30/2014 0 Source: BATS. Figure 21: Equities Trading Volume and Volatility 1. and we expect consumers will be shielded in the future.000. in our opinion.000 30 VIX 600. will impede the growth of bitcoin technology and ecosystem.

0 Bitcoin Transaction Volume (7 Day Avg) Bitcoin Price Volatilty (7 Day Avg) 20.0 20.0 10.0% 60.Figure 22: Bitcoin Trading Volume and Volatility 90.000.info.0 0. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 19 .0 Source: Blockchain. Inc.000.0 30.0 25.000.000.0 5.0% 10.0% 80.0 Price Volatility Transaction Volume 70.0% 30.000.0% 50.000.0% 8/1/14 7/1/14 6/1/14 5/1/14 4/1/14 3/1/14 2/1/14 1/1/14 12/1/13 11/1/13 10/1/13 9/1/13 8/1/13 0.000.000.0% 40.000.0 15. Wedbush Securities.

and Ernst & Young as the auditor. Shares trade on the OTC Markets Group OTCQX exchange under the ticker symbol “GBTC. The Trust was formed as a statutory trust in the State of Delaware in September 2013. open-ended trust that is invested exclusively in bitcoin and derives its value solely from the price of bitcoin. and can only issue shares in “baskets” of 100 shares. and safekeeping bitcoins. Shares of the Trust represent units of fractional undivided beneficial interest in and ownership of the Trust and have no par value. or liquidated as otherwise required by law or regulation.” The Trust is authorized to issue unlimited shares. if needed) to pay the Trust’s expenses. Continental Stock Transfer & Trust (SEC registered & regulated) as transfer and administrative agent. It enables investors to gain exposure to the price movement of bitcoin without the challenges of buying. The investment objective of the Trust is for the net asset value (NAV) per share to track the Bitcoin market price per share less the Trust’s expenses. During the life of the Trust. or the “Trust”. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 20 . Grayscale Investments. serves as the Trust sponsor. Sidley Austin LLP as legal counsel. The Trust has not experienced any change of control within the last three years. the shares will only be owned by the Trust and held by the Custodian. liquidated in the event that the Trust terminates. Initially when privately held.GBTC Structure and Management The Bitcoin Investment Trust (BIT). disbursed (or converted to USD. each share was backed by 0. is a private. SecondMarket Holdings serves as the custodian and administrator. storing.1 Bitcoins (BTC). Inc. distributed to authorized participants upon receipt of redemption baskets. a wholly-owned subsidiary of SecondMarket Holdings.

by changing levels of acceptance by merchants and consumers. • Additional expenses incurred by the Trust due to possible future regulatory compliance changes. though the Trust holds the ability to terminate should these expenses be disadvantageous to investors. • Increased competition from other payment technologies. may be: • Regulatory changes that may change the way BIT operates in regards to the way the Shares are traded on its designated exchange. • BIT is a passive investment vehicle. therefore it is not actively managed and is susceptible to losses that may have been mitigated by active trading. may be: • Bitcoin does not generate any cash flow. • Due to the Shares’ direct relationship to historically volatile bitcoin market prices. may adversely affect market pricing of bitcoins. the Shares’ underlying asset.Risks to Bitcoin Future risks that may face bitcoins. or theft from individual bitcoin wallets. • The maintenance and development of the open-source software protocol of the Bitcoin Network. • Monetary policies of central banks and governments may impose risk by trade restriction or currency revaluation. • Cyber theft of bitcoins by or from online bitcoin wallet providers. the value of the shares may fluctuate. possibly having adverse effects on bitcoin market pricing. Risks to GBTC Shares Future risks that may face the Trust. • Changes in global bitcoin demand. • Countries curtailing or outlawing trading and/or ownership of bitcoins. and its Shares. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 21 . or forms of crypto currency. services.

Gil Luria.B.pdf Investment Rating System: Outperform: Expect the total return of the stock to outperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. 2015) Outperform:55% Neutral: 43% Underperform: 2% Investment Banking Relationships (as of March 31.A. and Sell. a portion of which are generated by WS’ investment banking activities. Underperform: Expect the total return of the stock to underperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Neutral: Expect the total return of the stock to perform in-line with the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. directly or indirectly. Hold.wedbush. He joined Wedbush in 2005 and was previously at Sanford C.A. Luria holds a B. Prior to that he was a Manager with Deloitte Consulting focused on telecommunications companies. Please note. respectively. Equity Research.com/ResearchDisclosure/DisclosureQ115. Neutral. The analysts receive compensation that is based upon various factors including WS’ total revenues.Acknowledgements – thank you to Sherwin Dowlat for his contribution and Ryan Selkis and Kirill Gourov for their enlightening perspective on valuation. Disclosure information regarding historical ratings and price targets is available at http://www. covering Financial Technology stocks at Wedbush Securities. certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will not. however. in Economics from Hebrew University and an M.49 N/A $103. Gil's Edge: Gil relies on bottom-up fundamental analysis building on his deep understanding of technology and its implications for his companies.* Rating Distribution (as of March 31. Mr.43 $29. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 22 . 2015) Outperform:31% Neutral: 3% Underperform: 0% The Distribution of Ratings is required by FINRA rules. Bernstein covering large U. from Columbia Business School. telecommunications companies. Analyst Biography Gil Luria is a Managing Director. the definitions are not the same as WS’ stock ratings are on a relative basis.S. however. and Underperform most closely conform to Buy. WS’ stock ratings of Outperform. receive compensation or other payments in connection with my specific recommendations or views contained in this report. Aaron Turner. The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity.73 $92. The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative to the other stocks in the analyst’s coverage universe (or the analyst’s team coverage).31 PRICE TARGET $65 $90 N/A $97 $22 Analyst Certification I. Public companies mentioned in this report (closing prices on 7/9/15) COMPANY Visa Mastercard PayPal Intuit NCR TICKER V MA PYPL INTU NCR RATING NEUTRAL NEUTRAL N/A NEUTRAL NEUTRAL PRICE $66.

The information contained herein is not a representation by this corporation.com/services/cmg/equities-division/research/equityresearch Applicable disclosure information is also available upon request by contacting Ellen Kang in the Research Department at (213) 6884529. 4. its officers.. but its accuracy is not guaranteed. Additional information with respect to the information contained herein may be obtained upon request. WS expects to receive compensation for investment banking services within the next 3 months. Please access the attached hyperlink for WS’ Coverage Universe: http://www. The information and expressions of opinion contained herein are subject to change without further notice. WS has received compensation for products and services other than investment banking services within the past 12 months. WS has received compensation for investment banking services within the last 12 months. may have a position in any security discussed herein or in related securities and may make. 9. 2. 8. WS co-managed a public offering of securities within the last 12 months.Wedbush Equity Research Disclosures as of July 9. 7. 11.wedbush. The analyst maintains Contingent Value Rights that enables him/her to receive payments of cash upon the company’s meeting certain clinical and regulatory milestones.com. 10. by email to ellen. WS provided non-investment banking securities-related services within the past 12 months. * (213) 688-4505 * www. * WS changed its rating system from (Strong Buy/Buy/Hold/Sell) to (Outperform/ Neutral/Underperform) on July 14. Gil Luria (213) 688-4501 Bitcoin Investment Trust | 23 . WS is acting as financial advisor.kang@wedbush. Wedbush Securities. any associate of the research analyst. will not be displayed until the following quarter. WS or one of its affiliates beneficially own 1% or more of the common equity securities. You may also submit a written request to the following: Business Conduct Department. OTHER DISCLOSURES RESEARCH DEPT. WS makes a market in the securities of the subject company. 6. 3. 2009.com EQUITY TRADING Los Angeles (213) 688-4470 / (800) 421-0178 * EQUITY SALES Los Angeles (800) 444-8076 CORPORATE HEADQUARTERS (213) 688-8000 The information herein is based on sources that we consider reliable. The research analyst. Additional information on recommended securities is available on request. or the Business Conduct Department at (213) 688-8090. WS managed a public offering of securities within the last 12 months. or any one or more of them. purchases or sales thereof in the open market or otherwise. CA 90017. The herein mentioned securities may be sold to or bought from customers on a principal basis by this firm. employees. 12. Price charts for companies initiated upon in the current quarter. neither is it an offer nor a solicitation of an offer to sell or buy any security mentioned herein. Price Charts Wedbush disclosure price charts are updated within the first fifteen days of each new calendar quarter per FINRA regulations. nor is any recommendation made herein based on any privileged information. from time to time. This firm. and members of their families. This information is not intended to be nor should it be relied upon as a complete record or analysis. a member of the research analyst’s household. Los Angeles. 5. 2015 Company Disclosure Bitcoin Investment Trust Visa MasterCard PayPal Intuit NCR 1 1 1 1 1 1 Research Disclosure Legend 1. and rating and target price changes occurring in the current quarter. WS provided investment banking services within the last 12 months. or any individual directly involved in the preparation of this report has a long position in the common stocks. 1000 Wilshire Blvd.wedbush. and its discretionary and advisory accounts.

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