Bitcoin transactions could more than halve this year, Juniper Research predicted, as a lack of regulation and links with illegal activity hinder the cryptocurrency's ability to go mainstream.
In a recent report, the U.K.-based research firm estimated the value of cryptocurrency transactions would decline to $30 billion in 2015 from over $71 billion last year.
The bearish figures follow a rough start to the year for the controversial digital currency. Prices have been in freefall, trading below $250 throughout January compared with $1,000 at the same time last year, according to CoinDesk, a widely-watched price index.
"The decline is attributable to the combined impact of exchange collapses, Bitcoin theft and regulatory concerns around cryptocurrency's role in funding dark web purchases," Juniper Research said.
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Need for regulated exchanges
Experts agree that the introduction of regulated exchanges could lead to price stabilization and greater acceptance in the retail market.
"We predict that volatility will stabilize as more high-quality exchanges become established and more users come online," said Adam Tepper, CEO of Australian bitcoin exchange Independent Reserve, in a note last week. The lack of regulation is a barrier to mainstream acceptance, he said.
The launch last week of the first licensed exchange in the U.S. - the Coinbase bitcoin exchange - is a positive step for the currency and Tepper expects other exchanges to follow suit.
"The high-profile Mt. Gox collapse in 2014 highlighted the need for better technology and security controls for bitcoin exchanges, much as the U.S. flash crash highlighted these issues for traditional securities markets," Tepper added. Japanese firm Mt. Gox was a leading bitcoin exchange last year before going bankrupt following the disappearance of 850,000 bitcoins.
As a result of an unregulated marketplace, bitcoin theft has thrived, Juniper Research said, referring to the recent theft of nearly 19,000 bitcoins from U.K exchange Bitstamp, the second largest dollar-bitcoin exchange.
A serious PR problem
Public perception of bitcoin is closely associated with illegal online purchases and remains a major turnoff for widespread usage. In 2013, the currency came into focus for its prominence on notorious black market website Silk Road. Moreover, reports have emerged that bitcoin may be used by Islamic State militants as part of their fundraising campaigns.
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Juniper Research argues that such claims will likely see bitcoin struggle to gain traction beyond a tech-savvy and libertarian demographic.
However, users shouldn't overreact, argued Zennon Kapron, managing director at research firm Kapronasia.
"There may be some fluctuations in the value of bitcoin as a result [of dangerous activity], but no more than we would expect from fluctuations in the U.S. dollar or any other existing currency, which we know are used for things like financing terrorism."
Tepper agreed that bitcoin is no more vulnerable to inappropriate activities than other currencies. He expects the currency to make significant progress towards mainstream usage this year as more Wall Street players turn to bitcoin forex trading and binary options trading as speculative instruments.