A customer uses an ATM at a kiosk in Barcelona, Spain, on Tuesday, February 23, 2021.
Angel Garcia | Bloomberg | Getty Images
Citi believes that 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 central banks explore issuing their own currencies. digital.
“There are a number of risks and obstacles to Bitcoin’s progress,” the US investment bank’s forward-looking and global solutions team wrote in a note on Monday.
“The future of Bitcoin is therefore still uncertain, but short-term developments will prove decisive, as foreign exchange balances at the peak of mass acceptance or speculative implosion.”
It marks a change of tone for major financial institutions on bitcoin. Many banks have avoided the digital asset, claiming that it has no intrinsic value, and the hype surrounding it is similar to the tulip craze of the 17th century.
But the wild rise of Bitcoin in recent months has forced major Wall Street players to reevaluate the cryptocurrency. BNY Mellon, the oldest bank in the United States, said last month that it would provide custody services for bitcoin and other digital currencies. Meanwhile, JPMorgan said it looks serious like bitcoin.
Bitcoin and other cryptocurrencies are often subjected to wild crises of volatility. Just over a week after reaching an all-time high of more than $ 58,000, the price of bitcoin fell by more than $ 10,000. It has still increased by over 60% per year and by 460% in the last 12 months.
Crypto investors say Bitcoin’s latest Bull race is different from previous cycles – including in 2017, when it rose nearly $ 20,000 before falling 80 percent the following year – because it was driven by increased institutional investor participation. .
Originally created as a digital payment system to bypass banks and other financial intermediaries, bitcoin has since gained traction among ordinary investors as a kind of “digital gold” that can act as a hedge against rising inflation.
There are several hurdles that Bitcoin should overcome before seeing general adoption, according to Citi.
“The entry of institutional investors has boosted cryptocurrency, but there are still persistent issues that could limit large-scale adoption,” Citi said.
“For institutional investors, these include concerns about capital efficiency, insurance and custody, security and ESG considerations in Bitcoin extraction,” the bank added. “Cryptocurrency security issues arise, but compared to traditional payments, they work better.”
Bitcoin mining – the process of releasing new coins into circulation – requires a considerable amount of energy. The so-called miners with specially designed computers compete to solve complex mathematical puzzles to verify transactions. According to the Digiconomist. the bitcoin network has a carbon footprint equal to that of New Zealand. This alarmed environmental activists.
Last month, JPMorgan analysts called bitcoin an “economic issue” and said cryptocurrencies were ranked as “the poorest hedge” against significant declines in stock prices. The growing digital funding and demand for fintech alternatives is “the real transformation story of the Covid-19 era,” they added.