SWIFT Research Institute report: Bitcoin does not pose a threat to the fiat currency system in the short term (download the full report)

Is Bitcoin a potential threat to traditional monetary systems and financial institutions? Researchers at the SWIFT Institute do not think so. Three researchers, Dirk G Baur, Kihoon Hong and Adrian D Lee, published a report titled 《虚拟货币：交易媒介还是投机资产？》“Virtual Currencies: Media of exchange or speculative asset？” (full text download at Coin Library), which mainly analyzes the dynamic relationship between fiat currency and Bitcoin.

In the report, they presented a theoretical model to estimate the potential impact of Bitcoin and other digital currencies on legal currencies. The results show that Bitcoin and other digital currencies are at best tools for speculative investment. The unstable nature of Bitcoin has led to its use mostly in speculative transactions, thus greatly reducing the ability of this digital currency to be a medium of exchange.

The researchers further supported their theoretical predictions by analyzing Bitcoin usage trends by comparing Bitcoin wallets and market prices. The lack of interaction with traditional asset classes pegged to fiat currencies is also one of the reasons why they believe Bitcoin is a speculative currency.

The community has suppressed the development of Bitcoin

Regarding the supply and demand model, they argue that Bitcoin user psychology limits any near-term impact Bitcoin has on fiat currencies. The increased adoption of Bitcoin has inadvertently led to a rise in its price. However, this rise in value is simply caused by an influx of speculators, which has led to an increase in speculative trading, which in turn inhibits Bitcoin's purpose as a medium of exchange.

Speculation is a self-regulatory mechanism that prevents Bitcoin and cryptocurrencies from becoming a reliable medium of value. On the other hand, the sheer number of users and money supply in the fiat system makes it more stable, enough to eliminate any negative impact, unlike Bitcoin.

A ray of hope

The report also offers a solution to restore the value of digital currencies like Bitcoin. But this solution would have a significant impact on the fundamental principles of Bitcoin and other digital currencies, which were created to be decentralized, libertarian, and free-market.

The report authors do not completely deny the potential of Bitcoin as a medium of exchange. In order to achieve this goal, the Bitcoin community must stop using it for investment purposes. As long as digital currencies are used more for transactions, they are likely to go mainstream.