Investment bank Citi is one of the leading financial institutions in the world. Across the globe, its name is synonymous with the biggest financial deals that take place in the international economic waters. It is also an entity firmly set in the traditional financial environment and not one that quickly or easily presents theories about massive transformations of any domain, especially not one that is in many ways a fringe space. Yet, that is precisely what it recently did when it presented its potential vision for the future of bitcoin digital currency and its role in international trade.
Citi analysts and experts believe that bitcoin is starting a huge transformation that would make it more important than ever. Naturally, the same bank and its analysis do not conclude this out of thin air. Instead, the bank sets out two main elements of that transformation that are both in play now and should become set pieces in the coming period. Both are relevant to the bitcoin ecosystem, but also anyone who might be considering entering the same space, either as regular users or financial investors looking for a return of profit.
Fast Rise in Value
Over the previous several months, the bitcoin network began a steep and never-seen-before rise in value. It overcame the records from 2017 at the end of 2020 but it did not stop there. Instead, the value climb continued in the new year as well, breaking barriers of 40,000 USD and then the 50,000 USD before presently stopping below the next logical benchmark – 60,000 USD. Since then, the value of the BTC token dropped around 20 percent and continues to seem unsure at the present moment if it will move upwards or downwards. The situation is further complicated by the US FED and other entities from the traditional domain of finance, being that the price of BTC is often compared to the movements in this older field.
Now, however, there is another chance of a strong alignment with the traditional assets like stocks that could pull the price of BTC downwards and align with the rest of the US economy. Here, crypto is similar to esports and other purely digital ventures, but not entirely immune. The pull towards lower values would continue if the other developed nation ended up in the same financial difficulties. However, even that worst potential scenario in the present time frame is not impacting the assessment of CitiBank. Instead, it perceives the previous strong bull run as proof that the potential of the network can quickly materialize itself in the real world.
Citi analysts are not completely sold on the notion of bitcoin quickly transitioning to its new global role. They explain this by showing that the BTC token currently lies between widespread adoption as a regular financial tool and an implosion brought about through speculative action. In this regard, the issue of institutional adoption is especially mind-boggling. On one hand, it is this very institutional involvement that allowed for the recent drastic rise in BTC price value. Previously, it was individual investors and small-scale funds that made the difference in the bull run scenarios.
Now, it is companies that do the same through massive institutional investments where they purchase thousands of BTC tokens in single trading deals. Companies like Coinbase and their Pro accounts are the perfect testament to the same flow of cash from company liquid assets to digital currencies, mainly bitcoin. But, the same trading also added rocket fuel to the already drastically higher volatility, even though most companies seem to be in it for the long ride. In other words, the recent market tremors did not see the value of bitcoin and the overall crypto market plummet with panic selling. Companies appear to be sticking to their guns, but that is not taking away from the narrative of potential speculative implosion Citi experts are warning about.
It is also important to underline that the Citi report delves deep into the actual technology behind bitcoin. This is often a missing step for many analysts from the traditional domain, being that many do not care about the potential of underlying blockchain tech. Others understand it but believe that only fresh initiatives like government blockchain products or those from the traditional markets for financial services real matter.
Citi, on the contrary, sees bitcoin as a form of North Star that is showing the way where the broader blockchain ecosystem might be headed next. This does not mean that everyone else active in the crypto community is watching where bitcoin tech is going next – it is in fact relatively stable, especially in comparison to the ethereum network – but the fact that its very presence is spurring on a whole new ecosystem of services and possibilities. In that ecosystem, a new economy based on purely digital, non-national principles is being created spontaneously.
Obstacles and Risks
Naturally, the position and waste experience of Citi dealings mean that no analysis, even a positive one like this, would dare to simply disregard the possible hurdles and obstacles this process of transcendence would include for bitcoin. That means that even the most favorable winds would see the ship of bitcoin come across some hard seas. The hardest among them is the possibility of some kind of regulatory involvement. That action, including possible regulatory clampdowns in countries like the US or China, would be devastating to the crypto markets. Even slightly and loop-headed movements from the FED in the US would put a massive amount of jitters into any company looking to invest.
Of course, some entities, like MicroStrategy, would only double down at that moment for marketing purposes if nothing else. But, the domain would be a lot less populated for sure, especially because of the covid-19 hardships that the business domain saw in the previous 12 months. Also, the wider business and traditional finance adoption could trigger an opposite backlash. There could be a small or big schism inside of the crypto community of developers, many of whom are ideologically against any large-scale fusion with the traditional system. That would initiate something similar to the hard fork split that created the bitcoin cash network. But, barring catastrophic scenarios of these types, Citi believes that bitcoin is most definitely heading places.