Wedbush Securities has issued a new report on bitcoin, concluding that its recent boost in VC funding could unleash its disruptive potential in the long run.
The report, titled ‘Timing and Sizing the Era of Bitcoin’, examines emerging opportunities for bitcoin and its potential effects on various industries. Wedbush analysts Gil Luria and Aaron Turner believe bitcoin could have a profound effect on trust-based markets, payments markets and a range of other industries, including the Internet of Things (IoT).
The analysts think the disruption from bitcoin will take longer than expected, but it will have an even more profound effect than anticipated. The “era of bitcoin” is expected to last between two and 20 years from now.
Banking, payments and more
Wedbush points out that as much as 20% of the US GDP is generated by industries whose main function is as a trusted third party. Bank fees generate $250bn a year, while revenues related to global payments exceed $300bn.
However, Wedbush expects bitcoin will have an effect beyond payments:
“Although payment transaction fees are the most obvious fees that could be reduced by using bitcoin technology, we believe the use of the blockchain asset ledger and bitcoin protocol could also challenge financial services fees such as deposit fees, foreign exchange fees, escrow, trust management fees, collections fees, etc.”
Wedbush sees a silver lining in the collapse of Mt. Gox and security challenges faced by bitcoin operators and users.
“We believe that the fact that much of bitcoin balances need to be held offline in cold storage as ironic considering the goals of digitizing transactions, and believe that improvements in security measures will eventually eliminate the need for this mechanism,” Wedbush concludes.
Another vital piece of the puzzle will be the introduction of secure, robust and regulated exchanges in the US over the next few months. The key driver of the bitcoin price will future transaction volumes rather than regulatory moves and trading anomalies such as the Mt. Gox collapse.
Figure 7: Bitcoin Venture Funds RaisedSource: Venture Scanner, Wedbush Securities, Inc.
Wedbush also pointed out that the volume of VC funding has more than doubled in less than three months. It also commented on emerging technologies such as Ethereum, which could enable further developments in the field of digital currencies and smart contracts.
Disrupt everything
In addition to the financial services industry, Wedbush believes bitcoin could eventually disrupt a number of unrelated industries, including some emerging ones. Luria and Turner argue that bitcoin adoption is going through the “adoption chasm” and boarder adoption is still one to three years away.
One industry stands out as a potentially huge market with a role for bitcoin technology, if not bitcoin itself. Machine-to-machine communication, i.e. the Internet of Things, requires mechanisms to secure internet communication, allowing IoT devices to interact and transact. The Internet of Things is forecast to generate global revenues of up to $8.9tn by 2020, growing at a CAGR of 7.9%.
The company views bitcoin and Ethereum as “enabling technologies” that could be used to reduce denial of service (DDoS) attacks and eliminate spam emails.
Wedbush discussed a number of other uses for bitcoin and blockchain technology in a similar report published in January.