Bitcoin/USD: Is this the end of bitcoin? BofA Merrill Lynch asks the question

Last month Bank of America Merrill Lynch published its first assessment of bitcoin, with the view expressed that the crypto-currency could become a “major means for e-commerce and may emerge as a serious competitor for money transfer providers”. What’s more, the bank’s head of currencies research David Woo estimated that the current maximum fair value of one bitcoin could be $1300.

Subsequent to Woo’s initial analysis, China intensified its efforts to curb speculation in digital currencies, leading to a slump in the BTC/USD to a seven-week low at $449.80, reached on 18 December.

The PRC’s increasingly strident bitcoin regulation has somewhat pulled the rug from under the aspirant currency, which had hitherto experienced a near-vertical price rise after attracting the attention of investors in the world’s most populous country. The question is now being asked - is this the end of bitcoin?

What does this mean?

The two largest bitcoin exchanges in China, BTC China and OkCoin, say they can’t accept new deposits in the Chinese renminbi (RMB), following reports that the People’s Bank of China (PBOC) has banned third-party payment companies from dealing with local exchanges of digital currencies.

Woo observes, “Bitcoin prices have fallen significantly on the back of the news and the [RMB]’s share of overall transactions has fallen from the high of 78% on 12/15 to 33% on 12/18”, observes David Woo.

He then goes on to say that “the last time [RMB]'s share of transactions was below 40% on two consecutive days (Nov 6-7), bitcoin was trading at $313 in USD terms.”

The PBOC appears to be looking to halt speculation in crypto-currencies with this move effectively preventing new investment in the products from mainland China. Woo puts it like this,

There are very few bitcoin exchanges in the States and that is because the country’s tough regulatory stance on digital currencies.

In the view of BofA’s strategist,

Is this the end of Bitcoin?

There are three sources of uncertainty over the licensing process, according to Woo.

First, it’s “not clear whether the states will coordinate to set common requirements for granting licenses (this will take more time) or that they will act independently of each other”. Second, it remains unclear whether US regulation would require investors setting up bitcoin accounts to disclose their true identity to suppress money laundering activity.

And as a third factor,

The BofA strategist concludes that “together these factors will likely mean that bitcoin users make a small sacrifice by ceding some of the anonymity bitcoin provides”. But the bank “view[s] such sacrifices as a necessary part of legitimizing bitcoin within the regulatory framework and potentially paving the way for more wide-scale use”.