A new report from the SWIFT Institute has found that fiat currencies are more likely to crowd out digital currencies such as bitcoin.
The paper, Virtual Currencies: Media of Exchange or Speculative Asset? [PDF] analyses the dynamic relationship between virtual currencies, such as bitcoin, and fiat currencies. The research looked at whether or not the design and the size of virtual currencies could pose an immediate risk to monetary, financial or economic stability.
The paper found that fiat currencies are more likely to crowd out virtual currencies and that the design and size of virtual currencies deprive it of its intended use as a medium of exchange. It also found that the demand for virtual currencies by potential users increases its price which in turn attracts speculators who drive the price further up thus reducing the currency’s property as a medium of exchange with its main use of that as a speculative investment.
Other key findings in the paper reported that a third of bitcoins are held by investors, particularly those