Despite the current popularity and demand of Bitcoin, this cryptocurrency faces a series of challenges that it must overcome, especially if it aims to have greater institutional adoption globally. These considerations cover aspects ranging from market behavior to environmental issues. Citigroup’s analysts, in their report entitled Bitcoin at the turning point, delve into the growth of the cryptocurrency, its current status, the effervescence of institutional investments, in addition to analyzing what the obstacles that Bitcoin has on the way are. However, it is important to clarify that many of the points discussed in this report reflect traditional banking fears regarding Bitcoin. Below we will summarize the main points covered in the report:

Close to tipping point and risks

The report mentions that many risks and obstacles exist in the way of Bitcoin’s progress. Still, if they are balanced concerning opportunities, it is concluded that the currency is at a turning point, and that could be at the beginning of a massive transformation of Bitcoin towards its mainstream use. Hence, the risks that must be addressed in said cryptocurrency are: improving capital inefficiency, greater protection for not being issued by a government, custody service, permanent insecurity in the crypto market, and electricity to power work on the network, among others.

‘Tethered’ and unprotected Bitcoin funds

The report mentions that the banking sector’s concern is the investment in Bitcoin made by institutions and that their capital is “locked,” that is, the funds arranged in the cryptocurrency are tied up, without guaranteed financing and with limited leverage. Concerning government custody and protection services, cryptocurrencies, as they are not issued by any government, lack the “shielding” or “protection” that national currencies normally have.

News affecting the crypto market

The report highlights that Bitcoin transactions are secure due to their processing power and decentralized nature; however, they highlight security in the market as a source of concern, and the fear felt by this sector, beyond price volatility, is related to news events that could trigger massive purchases or sales of Bitcoin. The report mentions the case of institutional investors who have approached new Bitcoin positions, which would be generating distrust in companies and investment funds approaching Bitcoin. However, as investors approach, there is also the possibility that they will “walk away” due to negative news about hacks to the cryptocurrency exchange. It is important to note that this negative news point affects the crypto world and events that are reported globally, affecting any market, such as the case of the Covid-19 pandemic.

Exchanges with Tether and energy consumption

Other points of the report are related to the reliability of the exchanges that are made with the stablecoin Tether (USDT) and the energy consumption of Bitcoin as a digital system. Regarding energy consumption, fund managers focus on the impact that companies have on the environment; such an argument is based on the fact that if consumption continues to increase, it could lead to a withdrawal of “pro-environment” investors.

What do you think about this topic? Is there any other improvement that you think Bitcoin should have to surpass the barriers, and its use is massive?

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