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Will Bitcoin really become a universal currency?

14 Aug 2014, by Informa Insights


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There has hardly been a more intriguing, controversial or divisive invention in the history of finance than Bitcoin. While it has taken its time to draw universal attention and is still some way from becoming a mainstream item, there are plenty of indications to suggest that it will one day fulfil its potential as a serious, everyday technology.

Shrouded in mystery since it was first introduced to the world, Bitcoin is still surrounded by questions – and one that’s on the lips of most people interested in its developments is whether it will really become a universal currency.

Here we look at the latest thoughts and views on the issue:

“A major means for payment”

If Bitcoin was seeking affirmation from a major financial institution, then they’ve got it – Bank of America Merrill Lynch recently suggested that the cryptocurrency could one day become a “major means for payment”.

In December 2013, the global financial specialists released a research report – ‘Bitcoin: a first assessment’ – to explore the matter in depth and assess its viability as a universal currency. The findings will be well received for Bitcoin proponents, with the report highlighting its “clear potential for growth” and ability to disrupt traditional money transfer models.

As an intangible digital currency, much of whether Bitcoin becomes validated will hinge on whether a real dollar value can be placed on it – an effort that Bank of America Merrill Lynch has attempted in its report. According to the institution, its fair value analysis estimates a “maximum market capitalisation of Bitcoin of $15bn”. Broken down, that is USD$1,300 per Bitcoin.

However, the report does make a fair assessment of Bitcoin’s potential, looking at the possible roadblocks as well. One sticking point is its volatility as a currency – according to Bank of America Merrill Lynch, “Bitcoin’s role as a store of value can compromise its viability as a medium of exchange”.

The potential is certainly there, and it will be worth seeing how – or if – Bitcoin can overcome these challenges.

Bold predictions

Not everyone is sharing Bank of America Merrill Lynch’s optimism surrounding Bitcoin, however. One of the fiercest critics of the currency is Boston University’s Professor Mark T. Williams, who predicted last December that the value of Bitcoin would fall to $10 per share by June 2014.

That forecast has did not eventuate – yet Professor Williams is adamant that the days of Bitcoin are numbered.

“I continue to stick to my 2013 prediction that Bitcoin is grossly overpriced and the price will eventually adjust dramatically downward as the priced-for-perfection expectations set by Bitcoin promoters cannot be met,” he told CoinDesk, as quoted in a May 31 2014 article.

Bitcoin will only be further scrutinised by financial experts and analysts as time passes, and more pressure is placed on it to finally become the universal currency it has long promised to be.

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