China, Bank of America weigh in on Bitcoin

Kim Hjelmgaard | USA TODAY

Two major financial players, China's central bank and the Bank of America, weighed in Thursday on opposite sides on the viability of the wildly popular virtual currency Bitcoin.

The price of a Bitcoin fell below $1,000 after China's central bank banned financial institutions from trading the emerging currency, while Bank of America Merrill Lynch, in its first research report on Bitcoin, said the currency has potential to become a "major means" of payment.

The People's Bank of China said in a statement on its website that Bitcoin isn't a currency with "real meaning" and that its legal status was different from other currencies.

Bloomberg reported that Bitcoins traded at $980.00 early evening in Beijing on BitStamp, a currency exchange, after trading as high as $1,138.58 prior to the Chinese announcement.

The Chinese central bank said that while China's financial system is not currently at risk from Bitcoin trading, the digital currency does carry unacceptable risks, including fostering a trading environment of excessive speculation and the threat of criminal exploitation.

However, the powerful bank stopped short of imposing a ban on individuals using Bitcoins.

Just over 2 million bitcoins were traded in the past month on China's biggest exchange, BTC China, according to bitcoincharts.com, which follows trading in the cybercurrency.

Bank of America's report said the virtual currency could become a "serious competitor" to traditional money transfer providers. Bitcoin can help users avoid high taxes, capital controls and government seizures, but also is highly volatile, the report noted. Bitcoin, at its introduction in 2009, traded for less than $1. BoA placed the currency's maximum value at $1,300 per Bitcoin and said its maximum market capitalization would be $15 billion.

Despite wild swings in value, the virtual currency has been moving toward broader acceptance. A growing number of companies accept Bitcoins, which can be converted into cash.

Contributing: Donna Leinwand Leger, Associated Press