Bitcoin has been on a rollercoaster ride for most of its four-year history, with a series of dizzying price spikes and stomach-turning plummets, often in close succession. Thursday was no exception, as the digital currency picked up an unprecedented endorsement on Wall Street and a dose of cold water from the Chinese government.

For the first time, a major US investment bank has initiated coverage of bitcoins, and its overall assessment is relatively bullish. Or, at least not as bearish as some people have been saying.

"We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers," analysts at Bank of America's Merrill Lynch wrote in a 14-page research note to investment clients Thursday morning. "As a medium of exchange, Bitcoin has clear potential for growth in our view."

Even more significant, the analysts said that current valuations of the digital coin, which over the past six months have soared from about $100 to as high as $1,200, weren't overly optimistic. They put the fair-value worth of a single bitcoin at $1,300. To be sure, Bitcoin will have to pass several significant milestones before that price will be justified. Requirements include Bitcoin (1) accounting for at least 10 percent of all global business-to-consumer e-commerce transactions, (2) becoming one of the top three players in the money transfer industry, and (3) achieving a confidence or value reputation on par with silver commodities.

No doubt, Bitcoin isn't there yet. The Merrill Lynch report went on to say: "This suggests that the 100 fold increase in Bitcoin prices this year is at risk of running ahead of its fundamentals." Some people take this to mean the currency is overpriced. Others interpret it as merely saying there's little room for future growth.

Still, the Merrill Lynch report constitutes an important vote of confidence, particularly in light of recent pronouncements from naysayers. On Wednesday, for instance, Former Federal Reserve Chairman Alan Greenspan said Bitcoin prices are unsustainably high and called current valuations a "bubble."

Enter bears

Not that all of Thursday's Bitcoin news was without doubters. The Chinese government moved to restrict banks from using Bitcoin in transactions, according to published news reports. In a notice, government ministers said the step was needed to protect the status of the renminbi, the country's official currency, and to prevent money laundering and maintain financial stability. According to The New York Times, China's government said that investors were free to speculate on Bitcoin at their own risk, the same way they speculate on commodity trading.

Thursday's dueling votes of confidence were clearly reflected in Bitcoin valuations. Prices fell from almost $1,250 to a low of less than $950 and see-sawed through several swings. At press time, prices had largely stabilized between $1,100 and $1,150.

Prices in the coming weeks and months are likely to remain highly volatile, but given Wall Street's initial assessment, a major crash in the near future is looking less likely now. Bitcoin's skyrocketing value has been accompanied by an increase in $1 million hacker heists. If the recent run-up in prices holds steady, it will vastly increase the value of Bitcoins that federal authorities seized in the takedown of the Silk Road drug emporium, among other things.

Post updated to add details about risk of prices rising above fundamentals.