Global financial services firm Citi has released a report in which it tips Bitcoin becoming the future currency of choice for international trade, while highlighting potential pitfalls for the preeminent cryptocurrency.
The report, titled BITCOIN: At the Tipping Point, explores the cryptocurrency space and weighs in on the potential use cases for Bitcoin in the near future, as well pointing out barriers that could hinder the development and adoption of Bitcoin and other cryptocurrencies.
Delving deep into the history of Bitcoin since its inception in 2009, the Citi report gives an overview of the first decade of the cryptocurrency’s life and the growing pains it experienced. This is up until about 2017, where a swathe of interest and investment spurred Bitcoin and the wider cryptocurrency markets to never-before-seen highs.
A maturing ecosystem leads to ‘Digital Gold’ perception
The middle part of the report explores the maturation of the cryptocurrency ecosystem which in turn has led to Bitcoin being considered as an acceptable payment option across the world. Various cryptocurrency exchanges began offering a variety of services modelled off traditional banking offerings.
Views that Bitcoin has come to be considered as ‘Digital Gold’ are also highlighted in a section of the report, with the focus on the cryptocurrency’s hard-wired scarcity leading to that perception gaining traction:
“Beyond being mined, other similarities exist between Bitcoin and gold. The supply of both is seen as finite, though the amount of gold still existing in the earth is unknown whereas the amount of un-mined Bitcoin can be precisely calculated. Gold can be divided into ever smaller amounts, from ounces to half ounces, quarter ounces, grams etc. Bitcoin can be divided into Satoshi units equating to 100 millionth of one Bitcoin.”
Bitcoin could become preferred currency for global trade
Another major takeaway from the report is Citi’s belief that Bitcoin could become a more integral part of the global economy as a means of settlement or value transfer.
The introduction of the report outlines how some prominent private stablecoin projects and networks are being developed that could see a bigger share of daily transactions around the world begin to take place through networks and currencies that are not controlled by governments. This in turn has expedited the research and development of Central Bank Digital Currencies (CBDCs) in various countries.
Citi’s report suggests that the advent and proliferation of CBDCs would add further legitimacy to blockchain technology’s transition to a mainstream offering. It envisions a future where individuals and businesses have digital wallets holding various cryptocurrencies, stablecoins and CBDCs which would necessitate interoperability between traditional finance and nascent blockchain-powered currencies.
“In this scenario, Bitcoin may be optimally positioned to become the preferred currency for global trade. It is immune from both fiscal and monetary policy, avoids the need for cross-border foreign exchange (FX) transactions, enables near instantaneous payments, and eliminates concerns about defaults or cancellations as the coins must be in the payer’s wallet before the transaction is initiated.”
Fear of the unknown, regulatory obstacles
The report also notes challenges that stand in the way of further adoption of Bitcoin as it continues to gain more interest from both retail and institutional investors. The report notes that the global marketplace would need to be upgraded ‘before broad institutional participation could be envisioned’:
“Such enhancements would move Bitcoin and the cryptocurrency space closer to the oversight and rules of traditional financial regulators. This in turn may cause many of the most innovative developers and entrepreneurs to exit the ecosystem, as it moves away from the anti-establishment ethos of Bitcoin’s roots. Finally, the macro investing environment may shift and make the need for a new asset with Bitcoin’s profile less pressing.”
The full 108 page article can be downloaded here.