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Bank of America: Bitcoin could become THE currency of e-commerce

Guestimates that $1,300 is a reasonable price per coin

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Chinese banks may not be too keen on Bitcoin at the moment (which has done something to damp down the current price) but a new research report from Bank of America rates it as a major player in future internet transactions.

"We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers," the report states. "As a medium of exchange, Bitcoin has clear potential for growth, in our view."

Some suggest that the price of Bitcoin is going through a speculative bubble not based on reality, but the report's authors suggest that the currency may not yet have reached its true value. The Bank of America analysts think that the market value of a Bitcoin should be around $1,300, based on the assumption that around 10 per cent of e-commerce transactions will use the payment system.

Bitcoin has a number of advantages in the field, the report states. As a first-mover, or at least the first online currency to gain widespread acceptance, Bitcoin could push out any competitor currencies, and the authors note that while other virtual currencies have been tried, none have taken off.

Bitcoin's electronic nature makes it highly attractive for e-commerce, but the bank notes that the delay in transaction time may cause some vendors to steer clear of the currency. The report's authors also note that Bitcoin has a particular value as a crisis currency, and that the EU's Cyprus bailout coincided with a large increase in Bitcoin participants.

However, the report notes that the currency could suffer if governments around the world were to load it down with regulation, and its price volatility could make it unsuitable as a long-term storage medium for wealth. The security of Bitcoin could also be cracked, Bank of America suggests, rendering savings either worthless or worth a lot less.

The report notes that the public's interest in the currency, and its rapid price rise, has led to a 521 per cent growth in the number of Bitcoin miners. The amount of computational power required to mine a Bitcoin has now pushed hobbyists out of the market and specialized ASIC chips are required to perform the calculations needed to generate new currency. ®

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