A bona fide currency functions as a medium of exchange, a store of value, and a unit of account, but bitcoin largely fails to satisfy these criteria. Bitcoin has achieved only scant consumer transaction volume, with an average well below one daily transaction for the few merchants who accept it.

Its volatility is greatly higher than the volatilities of widely used currencies, imposing large short-term risk upon users. Bitcoin’s daily exchange rates exhibit virtually zero correlation with widely used currencies and with gold, making it useless for risk management and exceedingly difficult for its owners to hedge. Bitcoin prices of consumer goods require many decimal places with leading zeros, which is disconcerting to retail market participants.

It faces daily hacking and theft risks, lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. It appears to behave more like a speculative investment than a currency.

For bitcoin to become more than a curiosity and establish itself as a bona fide currency, its daily value will need to become more stable so that it can reliably serve as a store of value and as a unit of account in commercial markets. The excessive volatility shown in this paper is more consistent with the behaviour of a speculative investment than a currency.

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