LONDON (Reuters) – Bitcoin rose nearly 6% in months as risk assets rallied after it cooled last week, and Citi said the most popular cryptocurrency was at a “tipping point” and could become the preferred currency for international trade.
With the recent embrace of things like Tesla Inc. and Mastercard Inc., Bitcoin could be at the beginning of a “massive transformation” into the mainstream, Citi added.
Bitcoin, which rose to $ 47,000 from $ 4,700 in March last year, could become the preferred currency for international trade in the future or face a “speculative implosion,” the investment bank said.
It rose 5.7% to $ 47,834 starting at 1127 GMT on the Bitstamp stock exchange. The smaller rival ether added 7.5% to $ 1,525.
Bitcoin’s recent performance has come with increasing institutional investor involvement in recent years, in contrast to its strong focus on retail investors for most of the past decade, Citi added.
If companies and individuals gain access through digital wallets to the central bank’s planned digital cash and so-called stable currencies, global bitcoin coverage, traceability and potential for quick payments would see it “optimally positioned” to become the preferred currency for international trade, Citi said.
Bitcoin, designed as a payment instrument, is little used for trading in large economies, hampered by high volatility and relatively expensive transactions. However, in the last year it has gained traction in some emerging markets, such as Nigeria.
Such a dramatic transformation for bitcoin into the de facto currency of world trade – a status currently held by the dollar – would depend on changes in its market to allow for wider institutional participation and closer oversight by financial regulators, said Citi.
However, changes in the macroeconomic environment may also make the demand for bitcoin less pressing, she added.
The recent rise in interest in bitcoin, triggered by a narrative that it can act as a hedge against inflation, has led the cryptocurrency to a record high of $ 58,354 and a market capitalization of $ 1 trillion.
But in the past week, it has withdrawn more than $ 11,000 from those levels on questions about the sustainability of such high prices.
“There are a number of risks and obstacles to Bitcoin’s progress,” Citi analysts wrote. “But weighing these potential barriers to opportunities leads to the conclusion that Bitcoin is at a tipping point.”
(Chart: Bitcoin growth from March lows 🙂
Reporting by Thyagaraju Adinarayan and Tom Wilson; Montage by Hugh Lawson