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.
Bitcoin, a virtual currency created through a "mining" process where a computer's resources are used to perform millions of calculations, has been hailed as revolutionary because of its lack of ties to a central bank and its potential as an alternative to credit cards for paying goods and services.
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.
Two of its primary appeals -- the lower transaction fees compared to credit cards and its use in cross-border transactions -- have not been enough to offset its ups and downs.
Until a unique application emerges that separates it from credit cards, online payments or other currencies, the expansion may remain slow, many market insiders said.
"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."
Last week's second auction of bitcoins by the U.S. Marshals Service, which showed a drastic drop in bidders from the first sale in June, demonstrated just how far bitcoin has fallen off the radar. The first auction attracted 45 unique bidders, with 63 bids, while the December sale showed just 11 buyers and 27 bids.
Despite declining demand, billionaire venture capitalist Tim Draper, one of the most ardent supporters of the digital currency, believes bitcoin is still one of the "greatest technological breakthroughs since the Internet."
He is betting that bitcoin will be widely accepted by consumers who want to make secure purchases without costly bank or credit card fees.
Many applications are still being developed by start-up companies that will affect the way consumers operate, said Draper, who was the sole winner of the first U.S. Marshals' bitcoin auction and also took a portion of last week's sale.
MORE RETAILERS ACCEPTING BITCOINS, BUT...
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.
Bitpay, one of the two biggest bitcoin payment processors, is doing about $1 million in transactions per day, Stephanie Wargo, BitPay's vice president of marketing said. Coinbase, the other big payment processor, declined to disclose retail transaction volumes.
One development many bitcoin supporters hope could change this is the Atlas bitcoin card, the first bitcoin U.S. debit card for buying goods and services and a business backed by venture capitalist Draper.
But Atlas still has to run the gauntlet of regulatory approvals before the card hits the market, the company's co-founder, Mickey Costa said. He declined to elaborate.
Draper said Atlas could eventually save retailers the 2-1/2 to 4 percent fee they pay credit card companies.
WHAT'S IN YOUR WALLET
Just like retailer acceptance of bitcoin, the creation of wallets - which store secure digital keys used to access bitcoin addresses and sign transactions - has also surged.
At the end of the third quarter, the latest figures available, wallets grew to 6.5 million from 1.3 million a year earlier, according to Coindesk.
However, opening a wallet is cost-free, and 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.
For Brian Armstrong, chief executive officer at Coinbase in San Francisco, a better measure of consumer adoption is daily transaction volume, which crossed 100,000 in December for the first time, according to Blockchain.info, a wallet company.
But the bulk of that transaction volume has nothing to do with the actual buying of goods and services: activities such as miners moving bitcoins between wallets, said Jeffrey Robinson, who has written a book on bitcoin.
Bitcoin liquidity has also remained constrained.
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.
Where bitcoin could be valuable though is remittances across borders, especially in emerging markets, where transaction costs can be very expensive, said Steven Englander, global head of G10 FX strategy at CitiFX in New York.
"But in the end, you want to ask yourself, does bitcoin hold promise of making certain transactions efficient? The answer is yes," said Englander. "Does it cater to any market niche that is not already being taken care of? I am more skeptical."