Valleys and Rallies: The Turbulent Tale of Bitcoin Could Be Smoothed Out, Bank Believes

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More than 700 cryptocurrencies exist today, but none—not even the most famous of them, Bitcoin—have entered the mainstream of finance.

Some would argue that this is a good thing. But Bank of America Merrill Lynch believes the currencies cannot fully realize the potential of their long-term appreciation without regulation.

Francisco Blanch, BofA’s head of Global Commodities and Derivatives Research, published a note this week saying that digital tokens as they exist now—underground and unregulated—are significantly more vulnerable to fraud, hacking, theft and volatility of value.

“A key step for bitcoin would be for it to become pledgeable collateral,” wrote Blanch. “However, large inherent risks to digital tokens such as fraud, hacking, theft, new protocol adoption, limited acceptance, and that it is not legal tender many places in the world make it an unlikely development.”

Bitcoin trading now averages more than $1 billion per day, according to data from CoinMarketCap, despite lacking a proper store of value.

“The more liquidity and scale bitcoin builds to, the lower the volatility over time,” Blanch said, adding that that currency, like other cryptos, does not correlate with any major currencies or gold or oil. “Most regulated financial institutions allow their clients to borrow against financial or physical assets, but we are not aware of any major institution that takes cryptocurrency as collateral at the moment.”

Bitcoin, currently trading at around $2,500, has doubled in value this year alone. But it’s been a roller coaster ride of valleys and rallies.

Others like Ethereum carry similar potential—and similar risks.

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