In summary
- A new Deutsche Bank research note ranks Bitcoin among the top three world currencies by market value of its circulation, behind only USD and EUR.
- But it is not an exact comparison, and the report comes with some serious caveats.
Since its creation, just over a decade ago, Bitcoin (BTC) saw your price rise from practically nothing to its current value of more than $ 59,000.
At that time, Bitcoin’s market capitalization – its circulation offering multiplied by the value of each unit – skyrocketed to over $ 1 trillion, making Bitcoin not just the largest cryptocurrency, but also larger than most government fiat currencies.
Deutsche Bank has now crowned Bitcoin as the third world currency and calls it “too important to ignore” in a new research note this week entitled “The Future of Payments: Series 2: Part III: Bitcoins: The Effect Can Tinkerbell Become a Self-Realizing Prophecy? “
But the report contains serious caveats and omissions.
Deutsche Bank writes: “In terms of total currency in circulation, Bitcoin is the third largest in the world, after the US dollar and the euro. This is mainly due to the large increase in the value of Bitcoin recently. In early 2019, the Bitcoin represented ‘only’ 3% of US dollars in circulation, but in February 2021 it exceeded 40% of US dollars in circulation. “
Bitcoin and fiat currencies are not an identical comparison, for a number of reasons that DB recognizes in its note, including that Bitcoin has a fixed offer (limited to 21 million coins), while government fiat currencies do not. Still, the DB is roughly estimating where Bitcoin positions itself in the world currency ranking, comparing its currency market capitalization with the value of the total banknotes in circulation for the fiat currencies.
The DB warns in a footnote that these rankings “would change dramatically if we looked at the monetary base, or M1 or M2, to define the universe of existing dollars. Only the amount of money / coins printed seems small, as it does not include all assets held in US dollars on bank deposits. “
And, of course, Bitcoin’s market capitalization depends on its current price, which fluctuates constantly. As DB states, “Bitcoin is here to stay and its value will remain volatile.”
But there is another big caveat with the DB chart above. Do you notice the lack of any important currency? The graph and the report omit the Chinese yuan (CNY) entirely.
This is likely because China maintains strict capital controls that make the yuan not freely convertible, and the difference between the onshore and offshore yuan has widened, which makes it far from simple to reach the circulation volume of the yuan in this context.
That said, based on publicly available estimates, there may be around 9.19 trillion CNY in circulation, with a circulation value of $ 1.41 trillion. That would put CNY in third and Bitcoin in fourth. (Decrypt asked Deutsche Bank analysts for an explanation of why the bank left the Chinese yuan out of this research report.)
Where Bitcoin fits into the world currency ranking
The US dollar (USD) is still by far the largest fiat currency on offer and market value in circulation. DB estimates its total circulation value at $ 2 trillion.
According to the U.S. Federal Reserve, there are $ 1.8 trillion in Federal Reserve notes and coins in circulation – more than three-quarters of which are made up of $ 100 and $ 20.
Next comes the euro (EUR) – a relatively new currency that was first launched in 2002 and is now used in much of Europe and by most EU member states.
Like the US Federal Reserve, the European Central Bank maintains a updated reference for the amount of EUR banknotes and coins that goes into circulation. According to official statistics, there were just over 1.43 trillion euros in circulation in the last update (March 2021). This value has tripled since the launch of the euro, and the total value is mainly made up of € 20 and € 50 banknotes.
The Japanese yen (JPY) is not far behind in fourth place (after Bitcoin), with at least 118.3 trillion JPY notes and coins in circulation since the last update of the Bank of Japan, or just $ 1.09 trillion when measured against the dollar.
THE Indian Rupee (INR) it currently has over 34 trillion INR in banknotes in circulation, worth $ 469 billion.
Bitcoin currently has 18.66 million units in circulation, each worth $ 59,000 at the time of writing. This puts Bitcoin’s M0 (money supply) cap at $ 1.1 trillion, just surpassing the Japanese yen and taking just over half the U.S. dollar. At its current market capitalization, Bitcoin has a money supply that is worth more than 170 different fiat currencies.
But the volume of transactions is something completely different from market capitalization.
Deutsche Bank notes that Bitcoin transactions “are growing, but not as exponentially as their market capitalization. Currently, Bitcoin transactions are on average about 0.5 billion a day, which is miniscule. That represents only 0 , 02% of the euro and 0.009% of transactions in dollars. The average daily traded value for the dollar is 5.8 trillion and for the euro is 2.1 trillion, according to the three-year BIS 2019 foreign exchange survey. Bitcoin is comparable to smaller currencies. Bitcoin’s liquidity is much closer to the Thai baht. “
With its current market capitalization of $ 1.1 trillion, Bitcoin would need an 82% price increase to become the largest currency in the world (encrypted or otherwise) when measured by the circulation value.