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Bitcoin Bust: Empty Wallets

Posted on December 12, 2014

NEW YORK (Reuters) – After skyrocketing to more than a thousand dollars in price late last year and attracting global attention, bitcoin, the leading digital currency, has stalled.

Figures obtained by Reuters show that while “wallets” – cyberspeak for accounts – are being created at a steady clip, many of them are empty. Analysts also provided Reuters with data that shows liquidity in the cryptocurrency remains limited. . . .

However, the currency’s volatility has slowed broader acceptance. The price of bitcoin has plummeted roughly 50 percent so far this year. It most recently traded at $356.26, down from a peak of $1,163 in December 2013. . . .

“There has to be some motivation that would help this whole bitcoin system explode, like really good applications for consumers,” said Jonathan Levin, a London-based digital currency consultant and co-founder of the Oxford Virtual Currency Group. “At the moment, there isn’t.” . . .

The number of online merchants, including Overstock.com and Dell which accept bitcoin as payment jumped to 76,000 at the end of September from just 10,000 a year ago, according to digital currency news website Coindesk.

Still, actual retail sales using bitcoin remain paltry.

The only figures on retail sales in bitcoin are estimates and Tim Swanson, head of business development at Melotic, a Hong Kong-based exchange for digital assets, told Reuters global retail sales in bitcoin come to about $2.3 million daily (5,000-6,000 bitcoins). By comparison, consumers spend about $15 billion daily in the United States.

The vast majority of bitcoins are also immediately converted into traditional currencies like dollars and euros when handled in retail transactions. Fees for this typically run at about 1 percent or less. . . .

. . . of the 6.5 million wallets, only about 250,000 to 500,000 have actual bitcoins in them while the rest are empty, Melotic’s Swanson said.

John Ratcliff, a software engineer at Nvidia who has done extensive analysis on bitcoin transactions, estimated that monthly liquidity is about 10-20 percent of the entire 13.6 million bitcoin in circulation. The rest are either being hoarded or don’t trade because they’re fractional in size.

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