A customer uses a bitcoin cash machine (ATM) at a kiosk in Barcelona, Spain, on Tuesday, February 23, 2021.
Angel Garcia | Bloomberg | Getty Images
Citi thinks bitcoin is at a “tipping point” and could one day become “the currency of choice for international trade” as companies like Tesla and PayPal warm up and investigate central banks to issue their own digital currency .
“There are numerous risks and obstacles to Bitcoin’s progress,” the US investment bank’s global perspectives and solutions team wrote in a note Monday.
“So Bitcoin’s future is still uncertain, but short-term developments are likely to prove decisive as currency balances are at the tipping point of mainstream adoption or a speculative implosion.”
It marks a change in tone for major financial institutions on bitcoin. Many banks have historically shunned the digital asset, arguing that it has no intrinsic value and that the hype surrounding it resembles the tulip mania of the 17th century.
But bitcoin’s wild rise in recent months has forced major Wall Street players to re-evaluate the cryptocurrency. BNY Mellon, the oldest bank in the US, said last month it would offer custodial services for bitcoin and other digital currencies. Meanwhile, JPMorgan has said it looks serious like bitcoin.
Bitcoin and other cryptocurrencies are often subject to wild periods of volatility. Just over a week after hitting an all-time high of over $ 58,000, bitcoin’s price has lost more than $ 10,000. It is still up more than 60% over the year and 460% in the last 12 months.
Crypto investors say bitcoin’s latest bull run is different from previous cycles – including in 2017, when it surged nearly $ 20,000 before plunging 80% the following year – as it was driven by increased participation from institutional investors.
Initially created as a digital payment system to bypass banks and other financial intermediaries, bitcoin has since gained traction with mainstream investors as a type of “digital gold” that can serve as a hedge against rising inflation.
According to Citi, there are several hurdles that bitcoin would have to overcome before it would see mainstream adoption.
“The arrival of institutional investors has sparked confidence in cryptocurrency, but there are still persistent issues that could limit widespread adoption,” Citi said.
“For institutional investors, these include concerns about capital efficiency, insurance and custody, security and ESG considerations of Bitcoin mining,” added the bank. “Security issues with cryptocurrency arise, but it performs better compared to traditional payments.”
Bitcoin mining – the process of putting new coins into circulation – requires a significant amount of power. So-called miners with purpose-built computers compete to solve complex mathematical puzzles to verify transactions. According to Digiconomist. Bitcoin’s network has a carbon footprint comparable to that of New Zealand. This has alarmed environmentalists.
Last month, analysts at JPMorgan called bitcoin an “economic edge” and said crypto assets were ranked as the “poorest hedge” against significant declines in stock prices. The rise of digital finance and the demand for fintech alternatives is the “real transformation story of the Covid-19 era,” they added.