A customer uses a Bitcoin ATM (ATM) at a kiosk in Barcelona, Spain, on Tuesday, February 23, 2021.
Angel Garcia | Bloomberg | Getty Images
Citi believes Bitcoin is at a “turning point” and could one day “become the preferred currency for international trade,” as companies like Tesla and PayPal face it and central banks explore issuing their own digital currencies.
“There are a lot of risks and obstacles that hinder Bitcoin’s progress,” the US investment bank’s global solutions and prospects team wrote Monday.
“Therefore, the future of Bitcoin is still uncertain, but it is likely that the short-term evolution will be decisive as the balances of the currency to the point of influence of general acceptance or a speculative implosion.”
It marks a change of tone for major bitcoin financial institutions. Historically, many banks have shunned digital assets, arguing that it has no intrinsic value and that the hype surrounding it resembles the mania of 17th-century tulips.
But the wild rise of Bitcoin in recent months has forced major Wall Street players to re-evaluate the cryptocurrency. BNY Mellon, the oldest bank in the United States, said last month that it would offer custody services for bitcoin and other digital currencies. Meanwhile, JPMorgan has said it looks seriously like Bitcoin.
Bitcoin and other cryptocurrencies are often subject to wild volatility. Just over a week after reaching the all-time high of more than $ 58,000, the price of Bitcoin has lost more than $ 10,000. It has still increased by more than 60% in the year and 460% in the last twelve months.
Cryptocurrency investors say the latest Bitcoin bitcoin race is different from previous cycles, including 2017, when it rose to nearly $ 20,000 before falling 80% the following year as it has been driven by higher ‘institutional investors.
Initially created as a digital payment system to bypass banks and other financial intermediaries, bitcoin has since gained strength among major investors as a kind of digital gold that can act as protection against rising inflation.
There are several hurdles that Bitcoin should overcome before seeing widespread adoption, according to Citi.
“The influx of institutional investors has sparked confidence in the cryptocurrency, but there are still persistent problems that could limit widespread adoption,” Citi said.
“For institutional investors, they include concerns about capital efficiency, insurance and custody, security and ESG considerations of Bitcoin mining,” the bank added. “There are security issues with cryptocurrency, but compared to traditional payments, it has better performance.”
Bitcoin mining, the process of releasing new coins into circulation, requires a considerable amount of energy. So-called miners with specifically designed computers compete to solve complex mathematical puzzles to verify transactions. According to Digiconomist. The bitcoin network has a carbon footprint on par with that of New Zealand. This has alarmed environmental activists.
Last month, JPMorgan analysts defined Bitcoin as an “economic spectacle” and said cryptocurrency assets were classified as the “poorest hedge” in the face of significant declines in stock prices. Rising digital finances and the demand for fintech alternatives is the “real transformation story of the Covid-19 era,” they added.