Bitcoin Can Be Key E-Commerce Tool, Bank of America Says

Bitcoin can become a significant tool for e-commerce transactions and has “clear potential for growth,” analysts at Bank of America’s Merrill Lynch unit said.

The virtual currency, which has been growing in popularity and value, could benefit from its low transaction costs and as an alternative to cash, according to a report yesterday by David Woo, a foreign exchange strategist, and other analysts at Merrill Lynch.

Bitcoins, which exist as software and aren’t regulated by any country or banking authority, have climbed more than 80-fold this year and were trading at $983 yesterday on Bitstamp, one of the more active online exchanges where the digital money is traded for dollars and other currencies. Bitcoins should have a maximum market value of about $1,300, assuming they become a major e-commerce instrument and a significant “store of value” that’s similar to silver, according to the report.

“To the extent that Bitcoin offers users many benefits and efficiencies as a medium of exchange, this means it possesses some fundamental value that may increase over time as it gains wider use,” the analysts said.

While Bitcoins can offer benefits, the virtual currency faces challenges, including volatility and potential regulation, they said.

“As a unit of account and store of a value, it has considerable shortcomings which we believe will ultimately hinder it from ascending to international currency status,” according to the report.

Since being introduced in 2008 by a programmer or group of programmers going under the name of Satoshi Nakamoto, Bitcoin is being used to pay for everything from Gummi bears to digital cameras on the Internet, with more than 12 million Bitcoins in circulation, according to Bitcoincharts, a website that tracks the digital money’s activity.

-- Editors: Reed Stevenson, Ben Livesey

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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