The price of bitcoin can be expected to rise to $400 over the next 12 months, according to a new report by Wedbush Securities.

Authored by Gil Luria and Aaron Turner, the report begins with the goal of forecasting the future value of shares in the Bitcoin Investment Trust (GBTC), the first publicly traded bitcoin fund launched in March, ultimately concluding it will outperform its current $30.60 price to rise to $40 next year.

In its calculations, however, Wedbush expands on its approach to valuing bitcoin based on its expected penetration of large target markets. The bitcoin payments network, it suggests, could end up powering 10% of online payments and 20% of global remittances by 2025

The report reads:

“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 [roughly] $6bn market capitalization, which we would also describe an option on bitcoin supplanting some payment volumes from Visa, MasterCard, PayPal and Western Union, who combine for [less than] $300bn in market cap.”

Wedbush indicated it sees bitcoin demand stemming from its increasing use in e-commerce payments, remittances and micropayments due to its ability to reduce costs in these industries. For instance, the report estimates bitcoin can lower online payments fees from 3-8% to less than 0.5%, while it can cut the cost of remittances from 5-10% to less than 1%.

Secondary to these industries, the report predicts, will be bitcoin’s growth as a “banking alternative” in times of economic crisis, its applications for machine-to-machine transactions and applications of the blockchain as a distributed ledger.

Speaking to CoinDesk, author Gil Luria indicated that the goal of the paper was to answer a question that has long been the subject of theory, but little actual research.

“At this point, with all the investments from big exchanges and VCs, I thought it was worth tackling the tougher question of how to value a bitcoin,” Luria said.

Billions in volume

For its calculations on the subject, Wedbush also sought to determine how many bitcoins could be expected to be in circulation and held for investment annually until 2025.

The report notably foresees the percentage of bitcoins being held for speculation decline at a 2% rate annually over the next decade, falling from an estimated 24% today to 4% in 2025.

At that time, Wedbush expects bitcoin to account for 10% of the $5.9tn online payments market, 20% of the $744bn remittance market and 20% of the $924bn microtransactions market.

Using these calculations, Wedbush forecasts the bitcoin network could support $595bn in online payments volume, $148m in global remittances and $184bn in microtransactions.

Additional inroads are expected in enabling financial services in the developing world, with the bitcoin network accounting for $596bn in this financial activity.

“We see the scope of disruption as substantial considering 20% of US GDP is generated by industries whose main function is as a trusted third party,” the report states.

The calculations led the Wedbush authors to conclude that, based on the amount of bitcoin needed to support such financial activities, the price of bitcoin is currently trading at 40% below its expected future volume at its current $270 price.

Risk remains

Despite a mostly positive outlook, Wedbush acknowledged that the price of bitcoin could ultimately fall to $0 or otherwise rise and fall erratically.

The report projected that a change in the perception of bitcoin’s eventual value, even by as small as 0.01%, could drive a $100 change in the value of the payment network’s currency.

“This is different than most other financial instruments that have a far narrower range of outcomes, which in turn create more stable values,” the report reads.

Wedbush further suggested that there remains a 50% probability that bitcoin could succumb to a “Napster outcome” whereby it is overtaken by another distributed payments network, rendered useless due to a fatal flaw or made broadly illegal.

Still, it suggests there is also a 49.98% chance bitcoin will become a solution for its target use cases and a 0.02% probability that bitcoin will become a “global working capital of trade”, in which case it foresees a scenario in which a single bitcoin could be worth up to $1m.

Price increase image via Shutterstock

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