The Federal Reserve: Bitcoin Is Not a Major Competitor of the US Dollar

The Federal Reserve Bank of Cleveland has put out a research note on Bitcoin. Part of the note discusses the relative size of the current Bitcoin market compared to the US dollar :

You can’t hold a bitcoin in your hand, but you can spend one. Bitcoins are digital representations of value, a fiat currency based on cryptography—the use of encryption to store and transfer value securely. Transactions using bitcoins are decentralized in that they are validated and certified through a network of users rather than one central administrative site.

Though bitcoin has attracted a lot of attention, bitcoins are not widely accepted as a method of payment at most retailers, so the transaction volume associated with bitcoin is only a fraction of that of other forms of payment. Since its inception, daily transaction volume has varied from days with no transactions to over 100,000 transactions on November 28, 2013. The median number of transactions per day is 6,461, a tiny level of activity compared to credit cards and US currency. In 2011, for example, 20 billion credit card transactions were processed, according to one report, while fewer than 2 million Bitcoin transactions were confirmed during the same time period...

As of January 2014, the amount of bitcoins in circulation valued in US dollars was around 9.3 billion; by comparison the total value of all US currency is nearly $1.2 trillion, or nearly 130 times the value of all bitcoins (and we’re not counting bank accounts in this either). Once the entire supply of 21 million bitcoins has been mined, their value (at the current exchange rate) will be barely over 1 percent of the value of US dollars (even assuming no growth in US currency). So bitcoins, despite their high profile and relatively high value, still make up only a small portion of the value of US currency. And as a fraction of all payments in the world, it is even less.

It’s perhaps too early to assess the future of bitcoin, but in terms of number of transactions, total value, and even price stability, it is not currently a major competitor of the US dollar.