Joon Ian Wong (@joonian) | Published on August 26, 2014 at 18:18 BST
Bitcoin’s price is poised for “acute instability” due to an oversupply of coins from miners and large merchants, along with a weak growth in demand, according to a new research note from financial giant Citi.
The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.
As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:
“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”
Merchants add downwards pressure
Citi also arrives at a counter-intuitive conclusion about prominent merchants embracing bitcoin payments.