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Comment by crntaylor | Hacker News Reader

Don't get too excited. The actual quotation is

  "Assuming Bitcoin becomes a major player in both e-commerce 
   and money transfer *and* a significant store of value with 
   a reputation close to silver, our fair value analysis 
   implies a *maximum market capitalization* of Botcoin of 
   $15bn (1 BTC = 1300 USD).

   This suggests that the 100 fold increase in Bitcoin prices   
   this year is at risk of running ahead of its fundamentals."

So if two questionably likely events both occur, BAML think that Bitcoin might have a maximum value of 1300 USD.

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The assumptions they made are quite insane. To calculate how much value in bitcoins is required to facilitate online trades they fixated on proportion of total US households cash and deposits to their total expenditures. They assumed they will have amount of wealth in bitcoins that's in same proportion to 10% of their online expenditures. Then they extrapolated it to whole world.

Do Americans actually have cash and deposits at all? I was under the impression that most of their household expenditures are either directly coming from their paycheck or are credit based.

Not to mention that they "calculated" (how? they say that they divide 11trn by 0.7trn to get that) proportion to be 0.07 then they sliced it down to 0.04 because Americans have recently started saving money which is unusual.

They also assumed that shops will convert bitcoins back to dollars immediately.

When assessing bitcoins as a store of value they state bizarre things:

"Furthermore, the reputation of gold as a unique and safe store of value has been growing for the past ten thousand years. It will take some time for Bitcoins to acquire that reputation. We don’t know how to quantify the value of gold’s reputation, but this reputation is probably the main reason that its value is 60 times that of silver."

Personally I though that the reason gold is many times more expensive than silver is the fact that silver is vastly more abundant.

So for me it sounds more like: "If two questionably likely events both occur, BAML think that Bitcoin might have a maximum value of 1300 USD. Unless of course it turns out that pigs actually can't fly, then it could go higher."

Historically gold to silver ratio was around 15 -- Coinage Act of 1792 defines ratio to be exactly 15, for example. I don't think abundance of gold and silver changed much since then. So change from 15 to 60 indeed is based on the reputation of gold.

Roughly there's 10 times as much silver mined as gold. So you are right that 60 times is a bit high. 17.5 times is estimated proportion of those metals in earths crust (not sure if it takes into account gold and silver dissolved in oceanic waters.

Whether the difference between the actual price of gold and the price that can be derived from fundamentals is a value of trust in gold or, as BAML puts it in case of bitcoin, speculation, is up to debate. Pointless I think because speculation is enabled by trust.

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