Potential government interventions represent the principle threat to the widespread adoption of Bitcoin and cryptocurrencies, according to Coutts.
“Bitcoin fever is being called both an epochal step change that will positively transform the world of finance for ever and a speculative bubble that will inevitably end in tears,” said Lilian Chovin, investment strategist at Coutts.
“The volatility in Bitcoin’s value is representative of the conflict between these points of view.
“At the heart of the debate is the idea that the cryptocurrency derives its value from its use as a payment system – a new and improved Visa or PayPal – and as a new form of fiat currency.
“How well it provides advantages over these may well be the defining factor in whether Bitcoin is a good investment.”
The high profile volatility in cryptocurrency trading has brought a great deal of scrutiny from regulators and watchdogs around the world and, according to Chovin, that could out rank all of the other economic factors driving the market.
Indeed, South Korea’s recent efforts to impose a regulatory clamp down evidently saw some 11% come off the Bitcoin price (the Asian country is believed to contribute almost a fifth of all Bitcoin transactions).
“Demand for a decentralised and ungoverned asset was always going to be attractive in a world where faith in institutions is at a record low,” the strategist added.
“But as cryptocurrencies are seen by many as a way to evade taxes and fund fraudulent or criminal activity, the principal threat that we see to their widespread adoption is government intervention.”
Chovin highlighted that the South Korea move demonstrates the dangers of volatility for potential bitcoin investors.
“There are also indications that some countries are thinking about issuing government-backed cryptocurrencies based on blockchain technology,” the strategist said.
“Countries like Israel, Russia or Sweden among others are thought to be examining the possibility of having a state sponsored cryptocurrency. If Bitcoin’s value was mainly derived from its use as a means of circumnavigating regulation, its value is unlikely to stay high for long.”