A customer uses a bitcoin automated teller machine (ATM) in a kiosk Barcelona, Spain, on Tuesday, Feb. 23, 2021.

Angel Garcia | Bloomberg | Getty Images

Citi thinks bitcoin is at a “tipping point” and could one day “become the currency of choice for international trade” as firms like Tesla and PayPal warm to it and central banks explore issuing their own digital currencies.

“There are a host of risks and obstacles that stand in the way of Bitcoin progress,” the U.S. investment bank’s global perspectives and solutions team wrote in a note Monday.

“Bitcoin’s future is thus still uncertain, but developments in the near term are likely to prove decisive as the currency balances at the tipping point of mainstream acceptance or a speculative implosion.”

It marks a change in tone for major financial institutions on bitcoin. Many banks have historically shunned the digital asset, arguing it has no intrinsic value and the hype surrounding it is akin to the tulip mania of the 17th century.

But bitcoin’s wild ascent over the last few months has forced big Wall Street players to reevaluate the cryptocurrency. BNY Mellon, the oldest bank in the U.S., last month said it would offer custody services for bitcoin and other digital currencies. Meanwhile, JPMorgan has said it’s looking seriously as bitcoin.

Bitcoin and other cryptocurrencies are often subject to wild bouts of volatility. Just over a week after hitting an all-time high of more than $58,000, bitcoin’s price has shed more than $10,000. It’s still up over 60% on the year and 460% in the last 12 months.

Crypto investors say bitcoin’s latest bull run is unlike previous cycles — including in 2017, when it rose close to $20,000 before plummeting 80% the following year — as it has been driven by increased participation from institutional investors.

Initially created as a digital payments system for bypassing banks and other financial middlemen, bitcoin has since gained traction among mainstream investors as a kind of “digital gold” that can act as a hedge against rising inflation.

There are several hurdles that bitcoin would have to overcome before becoming a mainstream payment tool, according to Citi.

“Upgrades in the way the marketplace works would be required before broad institutional participation could be envisioned,” Citi said. “Such enhancements would move Bitcoin and the cryptocurrency space closer to the oversight and rules of traditional financial regulators.”

The bank added: “This in turn may cause many of the most innovative developers and entrepreneurs to exit the ecosystem, as it moves away from the anti-establishment ethos of Bitcoin’s roots. Finally, the macro investing environment may shift and make the need for a new asset with Bitcoin’s profile less pressing.”

Last month, analysts at JPMorgan called bitcoin an “economic side show” and said crypto assets ranked as the “poorest hedge” against significant drops in stock prices. The rise of digital finance and demand for fintech alternatives is the “real transformation story of the Covid-19 era,” they added.