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The Federal Reserve Bank of St. Louis has published an article on Bitcoin today. In it, the bank notes that the price of Bitcoin has three potential future: indefinite, infinite appreciation; zero; or somewhere in the middle. They believe it will be in the middle.
The authors, David Andolfatto and Andrew Spewak, conclude that one of the factors driving the price of Bitcoin is an ever-expanding supply of alternatives. Bitcoin is an inherently speculative and volatile asset. A fixed offering does not mean an ever-increasing value. The question determines the value, after all. Other tokens are frequently launched that have interesting properties for a part of the market. If Bitcoin was still the only cryptocurrency, something that was just the case for a very short period of its history, this money would probably go to Bitcoin.
Bitcoin maximalists ignore important realities
However, the argument of the Bitcoin maximalist that Bitcoin simply usurps any improvement by other tokens has never been realized. There are even fewer dApps and dApp users via Bitcoin blockchain than many later as Tron.
The Federal Reserve economists write:
Consider the following mental experiment. A restaurant that sells meals for $ 10 will happily accept payment in the form of a Hamilton account ($ 10) or two Lincoln accounts ($ 5). That is, the nominal exchange rate between the Hamilton and Lincoln bills is 2: 1. Now, suppose the supply of Lincoln accounts has increased, but the Hamilton invoice offer remains the same. The exchange rate remains unchanged […] That is, the increase in the supply of banknotes Lincoln led to a decline in the purchasing power of both the Lincoln and Hamilton banknotes, even though the supply of Hamilton bills remained fixed. An expansion in the supply of Altcoin could have a similar depressing effect on the price of Bitcoin?
There are other complicating factors for the price of Bitcoin. On the one hand, it is the cryptocurrency with higher liquidity. This makes it the access ramp and the exit ramp for many other cryptocurrencies. Does anyone remember when ICOs were conducted primarily for Bitcoin? Today Ethereum performs this function. It is important to underline that ICOs have fueled the demand for Ethereum up until 2017 and 2018. Ethereum has a large supply and may never stop producing new units. Therefore, its lower values make sense: the more something is available, the less value it is.
Federal Reserve on the intrinsic value of cryptocurrencies
The article also talks about "intrinsic value".
Consider now the bearish case for Bitcoin. This perspective is based on the fact that Bitcoin has no fundamental value and that sooner or later the market will recognize this fact. In our opinion, we can accept that Bitcoin trades above its fundamental value without claiming that its fundamental value is zero. In fact, many securities exchange above what could be considered their fundamental value. Gold, for example, trades above its measured value by its industrial applications.
As noted above, the actual utility of Bitcoin is a secure digital archive of value and transfer of the same. Other blockchains have taken and dominated the "blockchain" aspect of cryptocurrency. Despite global chaos, the demand for cryptographically secure payment systems is not necessarily popping up. But it is feasible for people to come into contact with blockchain technologies through banking applications and other decentralized applications. Such things will generate the demand for tokens that underlie these blockchains. Tokens such as Ethereum, TRON, NEO, Aelf have a long-term technical proposal that Bitcoin has long been lagging behind.
Smart Contracts Change The World
Bitcoin as an intelligent contract platform is probably a dream at this point. First of all, it's much more expensive to use. For another, at this point, other platforms simply do it better. It is likely that the trend of alternatives that increasingly absorb the total market capitalization of cryptocurrency will continue. The maximalists of Bitcoin rely on arguments spoiled as "network effect". These arguments conveniently ignore historical examples in which superior technology and marketing have surpassed dominant networks.
It is likely that the bitcoin does not move downwards towards zero. Even economists recognize it. But the odds are that a growing amount of cryptocurrency market capitalization will pass through and will be invested in alternatives with a growing demand based on their usefulness.
After ten years, Bitcoin remains more a speculative asset and a store of value. The tendency that Federal Reserve economists identify is representative of this. There are numerous factors that go into a real decline in the price of Bitcoin. A good percentage of owners will not sell at a loss. Another good percentage will not sell at all. These people keep the price of money at some level. But active trading can eventually reduce the price without taking into account the philosophical or strategic models of these people.
Nobody knows the real value of Bitcoin
Bitcoin and all other cryptocurrencies remain very much in a phase of price discovery. Some believe that Bitcoin has been overbought in the 2017 advertising bubble, which has itself raised the price of almost every other encryption available. Others believe it was just a fluke. Institutional money is just entering the picture. The utility of Bitcoin is only one aspect of its value, but it will play an increasingly important role while others develop more advanced and interesting features.
As the Federal Reserve economists said:
We think that the future price path is more likely to remain limited between these two extremes.
Zero? No. Endless gradient without significant changes in the demand climate? Certainly not. Look, Bitcoin. The 2000s have called and want their basic cryptographic design. The was smart contracts are rising. Anyone who does it best will see the greatest demand. It's probably that simple.
Disclaimer: the opinions expressed in the article are exclusively those of the author and do not represent those of, or should be attributed to, CCN.
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