(ShareCast News) - It's hard to say how high Bitcoin prices may rise, but many signs point to it being just a bubble and government action against it - possibly should prices triple - will likely determine its peak value, analysts at Citi told clients.
In particular, Citi pointed to the inherent volatility of Bitcoin, at nearly seven times that of emerging market currencies or gold, to argue that the crypto-currency would simply just not do as as a 'means of transaction' or as 'a store of value' - two of the basic properties of any currency.
It was also exceptionally "wasteful", with recent reports indicating that mining it was using up nearly as much as energy as consumed by all of Denmark, with the cost set to rise further.
Indeed, such waste would eventually become an additional incentive for governments to outlaw it, Citi argued.
The role played by Bitcoin in the informal economy was another reason why authorities might decide to act, together with the increasingly high risks a hypothetical failure of Bitcoin might pose for economies such as that of Russia, Nigeria or New Zealand due to the elevated value of Bitcoin transactions as a proportion of gross domestic product.
According to Citi, other countries with a high level of Bitcoin holdings as a share of GDP included the Ukraine, Kenya, South Africa and Colombia.
To take note of, at 2% the UK also ranked high on the list of countries that were the most Bitcoin friendly.
Citi drew a comparison with the negative wealth effects experienced during the Internet bubble to drive home its point.
During the 'Dotcom' bubble, between the peak in the stockmarket reached in March 2000 and the onset of economic recession in March 2001, the market capitalisation of shares listed in the US dropped by approximately 20% of GDP.
And now there were already several countries where the value of Bitcoin transactions, as a share of GDP, was starting to become worrisome, such as in Russia at 5% and Nigeria or New Zealand at 4%.
"If bitcoin were to flop, those countries would already experience a meaningful negative wealth effect. On the other hand, for the US it is very low at 0.17%.
"Another tripling of bitcoin prices from the highs (to $60,000) may focus minds of authorities. But are the potential wealth effects outlined above enough to compel policy makers in the at risk countries to move against bitcoin?," the analysts said.
Bitcoin's security was noting to write home about either, according to Citi, as recent cases of theft of Bitcoin wallets - albeit not the coins themselves - had demonstrated.
The advent of quantum computing also made it more likely that at some point private keys could be replicated from public keys, the investment bank said.
"Even in the best case outcome this is at the very least likely to lead to additional forks. While quantum computing may not be the end of bitcoin, at the very least it introduces further risks that make bitcoin not well suited to become a widely adopted currency, rather than just a highly speculative plaything."