Tuesday, December 03, 2013 Bitcoin Value

P L E A S E S E E I M P O R T A N T D I S C L O S U R E A N D A N A L Y S T C E R T I F I C A T I O N L O C A T E D I N T H E A P P E N D I X O F T H I S R E P O R T . Page 1

It is a Transaction Device

Richard X. Bove Vice President Equity Research

Financial Sector bover@raffcap.com

813.388.2900

Cryptocurrencies Will Survive Without Intrinsic Values A client raised three issues about Bitcoins which I believe to be correct:

1. A Bitcoin has no intrinsic value. 2. Investors and speculators are driving the price of the Bitcoin not transactors and this is dangerous. 3. The volatility in the price of Bitcoins will render them useless as transaction devices.

There are some key points missing in attempting to understand this phenomenon, however:

1. Bitcoins were not developed to replace gold even though they were patterned on the nature of gold as a currency. 2. Bitcoins were developed to facilitate transactions. Gold is too heavy and bulky and cannot be be used for this purpose any

longer, particularly in global markets that transact in quadrillions of dollars in payments. 3. Credit cards do not have intrinsic value either but they are normally used to facilitate transactions. Bitcoins should be

thought of as a low cost replacement for credit cards and other payment mechanisms like the old SWIFT. 4. While it is true that the price variations in Bitcoins are destroying their ability to function as a transaction device, the

concept of using a third party digital currency to make payments is appealing. 5. Anonymity is appealing to some non-criminal users, also. 6. If the Chinese gain control of the Bitcoin as I believe they will, the price volatility will end, and the Chinese will have gained

control of an international transaction device that can be utilized outside of the dollar and the control of the United States government. This is strongly desired in multiple nations and would not be good for the United States.

7. If Bitcoins fail because price speculation has destroyed their value as a transaction device, they will be replaced by other digitally driven payment mechanisms – other cryptocurrencies.

8. Bitcoin is the first to market with this concept. It is not the last and there will be other more refined approaches but make no mistake one or many digital currencies, which are not controlled by governments, are coming.

The shadow banking market is likely to use cryptocurrencies as they become more stable mechanisms for transactions. It is quite possible that banks may move in the same direction at some point. FinCen is allowing use of the coins and the Senate has raised no objections to this point. This is a phenomenon that must be monitored by anyone interested in banks that transact in dollars.

Tuesday, December 03, 2013 Bitcoin Value

P L E A S E S E E I M P O R T A N T D I S C L O S U R E A N D A N A L Y S T C E R T I F I C A T I O N L O C A T E D I N T H E A P P E N D I X O F T H I S R E P O R T . Page 2

Tuesday, December 03, 2013 Bitcoin Value

P L E A S E S E E I M P O R T A N T D I S C L O S U R E A N D A N A L Y S T C E R T I F I C A T I O N L O C A T E D I N T H E A P P E N D I X O F T H I S R E P O R T . Page 3

Financial Analyst Institutional Sales Richard X. Bove Vice President Equity Research bover@raffcap.com 813.388.2900

Joseph Bove Vice President Institutional Sales bovej@raffcap.com 646.572.3378

Ed Bugniazet Managing Director bugniazete@raffcap.com 646.572.3389

Ed Perley Perleye@raffcap.com 646.572.3386

Appendix: Analyst Certification and Other Important Disclosures Analyst Certification I, Richard X. Bove, certify that with respect to each security or issuer that I covered in this report; (1) all of the views expressed accurately reflect my personal views about those securities or issuers; and (2) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report. Regulatory Disclosures Analyst Stock Ratings Definitions Rafferty Capital Markets’ (“RCM”) ratings, effective January 2, 2013, are defined as follows: Buy – A stock that at initiation displays projected Price-to-Book ratio less than 100% and projected Earnings Direction greater than zero. The rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the rating to fall outside of the above parameters. Hold – A stock that at initiation displays projected Price-to-Book ratio less than 100% and projected Earnings Direction less than zero; projected Price-to-Book ratio between 100% and 200% and projected Earnings direction less than 10%; or projected Price-to-Book ratio greater than 200% and projected Earnings Direction greater than 10%. Sell – A stock that at initiation displays Projected Price-to-Book ratio greater than 100% and projected Earnings Direction less than zero. The rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the rating to fall outside of the above parameters. Distribution of Ratings RCM must disclose in each research report the percentage of all securities rated by the member to which the member would assign a "buy", "neutral" or "sell" rating. The said ratings are updated on a quarterly basis. Below is the distribution of RCM’s research recommendations:

Buy: 53.1% Hold: 43.8% Sell: 3.1%

There are 32 stocks under coverage Market Ratings Negative – A 10% expected decline in S & P 500. Neutral – The S & P is expected to trade within 10% bounds up or down. Positive – A 10% expected rise in the S & P 500. Valuation and Risks The primary risks to achieving our target price include general market fluctuations, unexpected shifts in economic activities, and/or unexpected reversals in company fortunes. Additional Information is Available upon Request to Barbara Martens at Rafferty Capital Markets, LLC, 1010 Franklin Avenue, Garden City, NY 11530 or 516.535.3800

Tuesday, December 03, 2013 Bitcoin Value

P L E A S E S E E I M P O R T A N T D I S C L O S U R E A N D A N A L Y S T C E R T I F I C A T I O N L O C A T E D I N T H E A P P E N D I X O F T H I S R E P O R T . Page 4

Other Disclosures Rafferty Capital Markets ("RCM") is an institutional brokerage firm that does not engage in investment banking. RCM and its affiliates, including its principals, may own securities of the companies which are subject of this report but do not own 1% or more of any class of common equity securities of any subject company. The information and opinions presented in this report are provided for informational purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. RCM has not taken any steps to ensure that the securities referred to in this report are suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investment. Information and opinions presented in this report have been obtained or derived from sources believed by RCM to be reliable, but RCM makes no representation as to their accuracy, timeliness or completeness. RCM accepts no liability for loss arising from the use of the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by RCM and are subject to change without notice. RCM may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and RCM is under no obligation to insure that such other reports are brought to the attention of any recipient of this report. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject RCM to any registration or licensing requirement within such jurisdiction. All material presented in this report is the property of RCM and is under copyright to RCM. This report may not be reproduced, distributed or published by any person for any purpose without the prior express written consent of RCM.