Citibank presents its “bull case” for Bitcoin, but also cautions of risks

US bank Citibank said that macro conditions have created a “tipping point” for the world’s largest crypto asset.

Opportunity and risks

Citibank analysts said Bitcoin is poised to become the world’s “currency of choice” for global trade and that the asset has reached its “tipping point,” as per a research report to clients on Monday.

Citibank have released a 106-page report on #Bitcoin.

BTC’s attributes « could spur it to become the currency of choice for international trade…. Bitcoin is at a tipping point and we could be at the start of a massive transformation of cryptocurrency into the mainstream. » pic.twitter.com/i8lrpxn5Ha

— Bloqport (@Bloqport) March 1, 2021

This comes after the banks (among many others) have been on the back foot when it comes to supporting Bitcoin or extending crypto-to-fiat and vice-versa services to clients. But the new research shows changing sentiment.

“Developments in the near term are likely to prove decisive as the currency balances at the tipping point of mainstream acceptance or a speculative implosion,” the bank said, suggesting the current macro outlook could create a positive backdrop for the adoption of the digital currency.

However, Citi added that Bitcoin’s future was still uncertain and that there were “a host of risks and obstacles” that stood in the way of Bitcoin’s progress. “The entrance of institutional investors has sparked confidence in cryptocurrency but there are still persistent issues that could limit widespread adoption,” it noted.

Citibank giving that $BTC bull casehttps://t.co/yS4WwGSfgU

— Su Zhu (@zhusu) March 1, 2021

The bank added that for institutional investors, these issues included concerns of capital efficiency (of deploying fiat for Bitcoin ahead of other options), insurance, custody, and security, of any held Bitcoin, and the various environmental concerns regarding Bitcoin mining—the intensive computational process via which new Bitcoin is generated.

Still, the bank says that cryptocurrencies are a better bet ahead of traditional payments in terms of security. “Security issues with cryptocurrency do occur, but when compared to traditional payments, it performs better,” it said.

Why are institutions buying Bitcoin?

Citibank asked crypto industry proponents and legacy finance bankers about why they felt there was a sudden influx into crypto assets. Here’s what the general consensus was:

“There may be relatively lower than the normal risk in public markets due to government support, which in turn frees up investors to deploy more risk capital.”

Interviewees explained that the ability to allocate expanded amounts of risk capital to private markets was constrained by “high reserves of dry powder,” but against this backdrop, there is a growing need to hedge inflation.”

They stated that it was a combination of these perceptions that prompted many investors to look further afield to find opportunities, apart from the views of Bitcoin as a potential source of ‘digital gold’ due to its finite supply of 21 million coins.

“Just as precious metals like gold are seen as scarce in the physical world, Bitcoin’s digital scarcity is seen as offering a potentially equivalent value proposition,” industry observers said.

The bank further noted that many interviewees hypothesize that the finite availability of Bitcoin stands in stark contrast to elastic sovereign money supplies and governmental incentives to print money to cover ballooning public debts—a point that causes a further influx of funds into the asset.

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