Bitcoin is either heading for the stars or will implode spectacularly, according to a new assessment of the cryptocurrency from Citigroup.
The crypto is at a tipping point and could go either way said the bank though it argues eventually it can be a success and even become the preferred currency for international trade even replacing the US dollar.
Big organisations such as Tesla, Mastercard and Paypal have all said recently they will accept Bitcoin and this might provide the kicker it needs to become a mainstream asset, said the bank.
Bitcoin is also evolving as the ‘North Star’ in the digital asset space and is a compass for the evolution of a broader ecosystem of crypto commerce, said its research.
New innovations, including the announcement of fiat-backed stable coins, used within public and private networks, might build pressure for central banks to consider their own digital currency options.
Institutional investor interest has also grown recently and if businesses and individuals gain access through digital wallets to central bank digital cash and these stable coins, Bitcoin’s global reach, traceability and potential for quick payments put in pole position to become the preferred currency for international trade, Citigroup said.
There are a host of risks and obstacles that stand in the way of Bitcoin progress, the bank cautions ‘but weighing these potential hurdles against the opportunities leads to the conclusion that Bitcoin is at a tipping point and we could be at the start of massive transformation of cryptocurrency into the mainstream’.
Changes on this scale would depend on opening its market to allow wider institutional participation and closer oversight by financial regulators but the entrance of institutional investors has sparked confidence in cryptocurrency but there are still persistent issues that could limit widespread adoption.
For institutional investors, these include concerns over capital efficiency, insurance and custody, security, and ESG considerations from Bitcoin mining.
JP Morgan, another Wall St heavyweight, meanwhile said that the cryptocurrency is a way to hedge against significant fluctuations in traditional asset classes like stocks, bonds, and commodities.
“In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio.”
Institutions buying again were cited as a reason for the price rally today, with the crypto’s value 8.5% to US$48,234 after heavy falls seen last week.