Count Citi among a growing number of institutional money managers making a cautiously bullish case for Bitcoin as an asset class.
The investment bank on Monday published a research report for clients assessing Bitcoin's potential as a financial instrument, noting its potential for a "massive transformation" as the cryptocurrency joins the mainstream.
The 107-page report says Bitcoin could become "the currency of choice" for international trade, thanks to its global reach and political neutrality. But it also highlights obstacles in the cryptocurrency's path toward widespread adoption, including the environmental impact of Bitcoin mining.
"Weighing these potential hurdles against the opportunities leads to the conclusion that Bitcoin is at a tipping point and we could be at the start of [a] massive transformation of cryptocurrency into the mainstream," the report said.
Citi analysts noted that the cryptocurrency has evolved from "being primarily a retail-focused endeavor to something that looks attractive for institutional investors."
The industry, however, still has work to do in terms of providing custodial solutions that meet the muster of the world's largest investors, in Citi's estimation.
The Citi report is just the latest piece of analysis from the biggest names in global finance wrestling with the question of whether Bitcoin's moment in the mainstream has arrived.
JPMorgan published a research note on Feb. 24 highlighting an institutional Bitcoin allocation strategy. The note to clients said investors could put up to 1% of their portfolio in Bitcoin to reap the diversification benefits of the cryptocurrency without undue exposure to potential losses, Bloomberg reported.
An earlier JPMorgan note from Feb. 18 suggested that up to 2.5% of a portfolio's allocation to Bitcoin could provide the "optimal" balance between safety and volatility.
Bridgewater Associates, the world's largest hedge fund, considers Bitcoin more akin to digital gold than an alternative currency, its head of investment research Rebecca Patterson told Bloomberg TV last week.
"If anything, it's an alternative to gold, or a digital gold. That's a better comparison. It's something investors have been looking to as they worry about fiat currencies being devalued by money printing," Patterson said.
Patterson said there wasn't a single factor that would spur global-macro specialist Bridgewater to add Bitcoin to its existing mix of holdings, which include stocks, bonds and commodities. Instead she highlighted three areas that would have to improve for the fund to start buying Bitcoin: regulatory certainty, deeper liquidity and lower volatility.
"The more you get a real regulatory eco-system developing around Bitcoin and other cryptocurrencies, the more other types of investors are going to be comfortable coming in," she said.
Cathie Wood, who heads the world's largest actively managed exchange-traded fund, Ark Invest, told a Bloomberg conference that she conservatively estimated Bitcoin's potential total value in "the trillions" of dollars.
"If we assume a conservative allocation, in terms of cash or insurance policies, you do get into the trillions of dollars in market cap potential out there. So, very early days," she said.
Wood was referring to corporations' use of Bitcoin as a hedge against inflation caused by an expanding money supply as a form of insurance. Her ETF products have attracted more than $50 billion of assets under management, with much of that amount flowing in last year, turning her into a household name on Wall Street.