A customer uses an ATM with Bitcoin in a kiosk in Barcelona, ​​Spain on Tuesday, February 23, 2021.

Angel Garcia | Bloomberg | Getty Images

Citi believes Bitcoin is at a “tipping point” and one day “could become the currency of choice for international trade” as companies like Tesla and PayPal take an interest and central banks scrutinize issuing their own digital currencies.

“There are a variety of risks and obstacles standing in the way of Bitcoin’s progress,” the US investment bank’s Global Perspectives and Solutions team wrote in a note on Monday.

“Bitcoin’s future is therefore still uncertain, but developments in the near future should prove crucial as currency balances are at the tipping point of mainstream acceptance or a speculative implosion.”

This is a change of tone for large financial institutions in the bitcoin space. Many banks have shunned the digital asset in the past, arguing that it has no intrinsic value and that the hype that surrounds it resembles the tulip craze 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, announced last month that it would offer custody services for Bitcoin and other digital currencies. Meanwhile, JPMorgan has said that it seriously looks like Bitcoin.

Bitcoin and other cryptocurrencies are often subject to wild volatility attacks. Just over a week after hitting an all-time high of more than $ 58,000, Bitcoin price has lost more than $ 10,000. It’s still up over 60% year over year and 460% over the past 12 months.

Crypto investors say Bitcoin’s recent bull run is different from previous cycles – including in 2017 when it rose to nearly $ 20,000 before falling 80% the following year – as it was based on increased participation institutional investor.

Originally developed as a digital payment system to bypass banks and other financial intermediaries, Bitcoin has since gained importance 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 Bitcoin would have to overcome before it goes mainstream.

“The entry of institutional investors has instilled confidence in the cryptocurrency, but there are still issues that could limit its widespread adoption,” said Citi.

“For institutional investors, these include concerns about capital efficiency, insurance and custody, security and ESG considerations from Bitcoin mining,” the bank added. “There are security issues with cryptocurrency, but performance is better compared to traditional payments.”

Bitcoin mining – the process by which new coins are brought into circulation – requires a considerable amount of energy. So-called miners with purpose-built computers compete to solve complex mathematical puzzles to verify transactions. According to Digiconomist, the Bitcoin network has a carbon footprint that is in no way inferior to that of New Zealand. This has alarmed environmental activists.

Last month, JPMorgan analysts called Bitcoin an “economic sideline” and said crypto assets are the “poorest hedge” against significant price falls. The rise in digital finance and the demand for fintech alternatives are the “real transformation story of the Covid-19 era,” they added.