Bitcoin is not currently a major competitor of the US dollar, say researchers at the Cleveland Fed
It’s perhaps too early to assess the future of bitcoin, but in terms of number of transactions, total value, and price stability, it is not currently a major competitor of the US dollar, according to Federal Reserve Bank of Cleveland vice president and economist Joseph Haubrich and intern Ashley Orr.
Bitcoins are digital representations of value, a fiat currency based on cryptography—the use of encryption to store and transfer value securely. Though bitcoins have attracted a lot of attention, they are not widely accepted at most retailers, so their transaction volume is only a fraction of that of other forms of payment. In 2011, for example, 20 billion credit card transactions were processed, while fewer than 2 million bitcoin transactions were confirmed.
Bitcoin trades simultaneously for different prices on different exchanges, and the price is highly volatile. The researchers note that the price of one bitcoin in terms of the US dollar has varied from five cents to over $1,000 since bitcoin’s creation in 2009. (As of July 2014, the price was around $650 per bitcoin.)
Another way to note the changing value of bitcoin is to look at what it will buy, say the researchers. Since 2011, the average monthly price of a gallon of gasoline has varied 69 cents in US dollars and 1.17326 bitcoin — $734.37 in terms of the current exchange rate.
Read Bitcoin versus the Dollar
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Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Doug Campbell, email@example.com, 513.455.4479