Bitcoin needs government regulation to rise further, Morgan Stanley says

Investment bank suggests speculation has fueled recent price gains

Proponents of the digital currency bitcoin frequently cite its decentralized nature as one of the primary attributes that excites them about the technology. Meanwhile, bitcoin investors are no doubt thrilled with its rapid price appreciation, which has seen it nearly triple in 2017 alone.

According to Morgan Stanley, however, the latter group may not be able to see further gains unless the former gives up some of its autonomy.

The investment bank noted that the “rapid appreciation” of bitcoin and other cryptocurrencies, like ethereum, had “elicited many inbound phone calls to both our banks and tech teams” as the gains entice prospective investors and adopters. However, it added, “governmental acceptance would be required for this to further accelerate, the price of which is regulation.”

Cryptocurrencies as a category recently topped $100 billion in combined market capitalization, thanks to blindingly fast surges by bitcoin and ethereum, the two largest digital currencies.

Bitcoin BTCUSD, -6.27% rose 2.4% to $2,746.83 on Tuesday; recently, it hit an all-time high above $3,000. Ethereum fell 1.7% on Tuesday, but has seen an even bigger year-to-date rise than bitcoin. Both have seen spikes in trading volume.

Both the size and speed of bitcoin’s recent rally, as well as the recent pullback, has some investors wondering whether a longer-term downtrend is in store, even though one metric—a kind of modified P/E ratio that has been developed by analysts—suggests its valuation isn’t currently at an extreme.

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“It is not clear why cryptocurrencies are appreciating so rapidly (apart from the appreciation itself drawing in more speculation against a potentially inefficient ability to sell),” Morgan Stanley wrote, though it was skeptical that further gains could continue in the current regulatory environment.