Bank of America has become the first US bank to talk openly about bitcoin, having issued a client note stating that the digital currency has "clear potential for growth".
The news came in a 14-page note sent to clients by Bank of America currency strategist David Woo. He said he believes the maximum market cap of bitcoin is $15bn, or about 1,300 USD per 1 BTC.
In the note, Woo pointed out that bitcoin makes sense as a medium of exchange and has the potential to become a major means of payment for e-commerce. It could even emerge as a serious competitor to traditional money transfer providers, Woo wrote.
It is interesting to note that Woo unambiguously identified e-commerce as a possible catalyst for growth. E-commerce and mobile commerce are slowly becoming more mainstream and even many traditional retailers are embracing the "click-and-mortar" business model, where they run both online and offline operations, which effectively blurs the line between e-tail and traditional retail.
Cross border e-commerce is also booming, particularly in the UK, so bitcoin could have a few more practical applications if it is embraced as an exchange medium, especially in certain markets.
However, Woo also pointed out that bitcoin could be used for other, unsavoury activates. He said bitcoin could be used to avoid tax, capital controls and confiscation. On the other hand, all bitcoin transactions are a matter of public record and every single bitcoin has a unique transaction history that cannot be changed, which could limit its use in the black market. After all, countries like Cyprus or Switzerland have banking laws that are far more suitable for money laundering than bitcoin.
Woo argued that bitcoin is not a bubble, provided it becomes a major force in e-commerce and money transfer. It also needs to become a "store of value with a reputation close to silver" to make it happen. Woo puts the maximum market cap of bitcoin at $15bn, or about 1,300 USD per 1 BTC.
Woo's market cap estimation is considerably more modest than the estimation voiced by the Winklevoss twins last month. The brothers, who are major investors in bitcoin after becoming wealthy from an early partnership with Facebook founder Mark Zuckerberg, told CNBC that bitcoin's market cap could reach $400bn.
Co-authored by Nermin Hajdarbegovic and Emily Spaven.
What do you think the market cap will reach? Let us know in the comments.
Bank of America image via Shutterstock.