Bitcoin can become a significant tool for e-commerce transactions and has “clear potential for growth,” analysts at Bank of America’s Merrill Lynch unit said.
The virtual currency, which has been growing in popularity and value, could benefit from its low transaction costs and as an alternative to cash, according to a report on Thursday by David Woo, a foreign exchange strategist, and other analysts at Merrill Lynch.
Bitcoins, which exist as software and are not regulated by any country or banking authority, have climbed more than 80-fold this year and were trading at US$983 on Thursday on Bitstamp, one of the more active online exchanges where the digital money is traded for US dollar and other currencies.
Bitcoins should have a maximum market value of about US$1,300, assuming they become a major e-commerce instrument and a significant “store of value” that is similar to silver, according to the report.
“To the extent that bitcoin offers users many benefits and efficiencies as a medium of exchange, this means it possesses some fundamental value that may increase over time as it gains wider use,” the analysts said.
While bitcoins can offer benefits, the virtual currency faces challenges, including volatility and potential regulation, they said.
“As a unit of account and store of a value, it has considerable shortcomings, which we believe will ultimately hinder it from ascending to international currency status,” according to the report.
Yet bitcoin exchanges, payment processors and other startups say they need banks to connect them to the existing payments system and provide basic services like checking accounts.
To do that, the fledgling companies must convince the regulators who police the banks that bitcoins are not being used to conceal illicit activity.
“Banks are scared to deal with bitcoin companies, even if they really want to,” said Stephen Pair, co-founder and chief technical officer of BitPay Inc, an Atlanta-based company that processes payments for merchants in bitcoin. Pair said BitPay has relationships with banks in the US, Canada and Europe; he declined to name them at the banks’ request.
China’s central bank on Thursday barred financial institutions from buying and selling the virtual currency and from pricing products in bitcoin, sending prices tumbling more than 10 percent, according to the CoinDesk Bitcoin Price Index.
CoinDesk synthesizes prices across major global exchanges where bitcoins can be traded for traditional currency. Its value stood at US$1,052.25 at 5pm New York time.
Prices jumped last month when a US Department of Justice official described the currency as “a legal means of exchange.”