No, I think that it can't. It could be used along with traditional money but it can't entirely replace it. Unfortunately bitcoin has to many issues, weeknesses and characteristics that don't allow it to be fully used and implemented in traditional financial system. Volatility is just one of them.
Exactly, this will not happen because the fact that government still doesnt accept it because of it some characterics. In addition its now facing more problem unlike the conventional money. I think bitcoin will still remain as a virtual currency until it solved the problems about it.