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Wedbush

Among other facets, we believe Bitcoin and its associated technology represent a potentially game-changing disruption to our covered payments companies.

We see the intrinsic value of Bitcoin as the conduit in a new global crowd-funded open-source payment network.

We observe three key sources of demand for Bitcoin as a disruptive payment network technology, an alternative uncorrelated-asset class, and a safe-haven currency, but believe the payment network capabilities are the key to the sustainability of crypto currency, with Bitcoin the early leader.

We believe that by decentralizing processing, allowing for market-based fees and adding new functionality, crypto-currency technology provides a powerful alternative to branded networks. Initial benefits for crypto-currency technology may be in processing micro transactions and cross-border payments, but the potential for innovation is significant. With a flexible fee structure and competitive price/lag dynamics, we believe Bitcoin is better suited to replace high-cost branded network micro-payments charges. We believe cross border transactions would benefit from the ability to avoid currency translation or conducting the foreign exchange outside the payment network. We further believe crypto-currency technology will develop new advantages over existing payment networks such as transaction-linked code, differential settlement fees/timeline and currency flow analysis.

We believe the key to Bitcoin's success so far, and significant promise going forward, is in crowd-funding the development of the first new global payment network in decades. By allowing infrastructure providers to get compensated in the conduit/currency (Bitcoin) and then adding more investors by selling them the conduit/currency, the payment network is being capitalized by a very broad set of infrastructure providers and investors.

We see some evidence for this in the willingness of key countries (Germany, U.S., China) to regulate, not shut down Bitcoin, in spite of the perceived risk to their sovereign currency. More importantly in our mind is that with a decentralized structure even if a small number of countries choose not to interfere or are not able to interfere, Bitcoin's technologies are likely to thrive.

We do believe there is a meaningful probability Bitcoin (the specific currency/conduit) may not succeed, but this will most likely be a result of the emergence of a better crypto currency. We believe alternative currencies will continue to emerge, though none of the current batch appears to be superior enough to overcome the substantial head start for Bitcoin. We also believe that given the early stages of development and revolutionary technology, weaknesses will continue to be identified and at times exploited.

Based on the order of magnitude of the overall opportunity and some very rough calculations we also believe scenarios exist by which a Bitcoin could be worth 10-100 times its current price. We believe rising Bitcoin prices help build the network, thus entrenching its value, especially vis-à-vis other alternative coins/conduits. Based on this framework, we would postulate that current Bitcoin prices reflect a peak penetration of 1% of total potential demand in 10 years.

We believe the volatility in Bitcoin prices is a result of an extended price discovery process as the market overcomes substantial friction and the very divergent set of outcomes. In terms of the broad divergence of outcomes (zero or 10 times and more), we think of Bitcoin as the equivalent of a biotech that had a molecule that may cure the common cold. Therefore, we do not expect volatility to subside anytime soon.

The long-term threat posed by this technology is mostly to the payment networks ( Visa (ticker: V), MasterCard (MA)) and technology facilitators such as ACI Worldwide (ACIW), in our opinion. We believe crypto-currency technology may have advantages in introducing new capabilities and a superior point-to-point cost structure to the current hub-and-spoke branded networks.

We see the long-term opportunities presenting themselves to payment-type-agnostic technology providers such as eBay (EBAY). For [eBay unit] PayPal, Bitcoin represents another potential low-cost funding method. PayPal is already incorporating private-label cards, gift cards and miles into the digital wallet and we believe that with more regulatory clarity PayPal would likely embrace Bitcoin.

-- Gil Luria

-- Aaron Turner

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