Bitcoin Is Dragged Down By The Expanding Supply Of Alternatives: Federal Reserve Bank Report

St. Louis Federal Reserve Bank has published an article about bitcoin where it says that the price has three most likely scenarios: indefinite/infinite appreciation, zero or somewhere in between. In our today’s bitcoin news we take a closer look at the article.

The authors David Andolfatto and Andrew Spewak believe that bitcoin will likely get the third option: somewhere in between. They think that the reason why the price is being dragged down is because of the expanding supply of other altcoins. Since bitcoin doesn’t have s fixed supply, that doesn’t mean that bitcoin will continue to only increase. The demand is determined by the value. On the contrary, other tokens are launched constantly with many new features that are attractive for the market.

The Federal Reserve representatives noted:

‘’Consider the following thought experiment. A restaurant selling meals for $10 will happily accept payment in the form of one Hamilton bill ($10) or two Lincoln bills ($5). That is, the nominal exchange rate between Hamilton and Lincoln bills is 2:1. Now, suppose that the supply of Lincoln bills is increased but the supply of Hamilton bills remains the same. The exchange rate remains unaffected . That is, the increase in the supply of Lincoln bills has led to a decline in the purchasing power of both Lincoln bills and Hamilton bills, even though the supply of Hamilton bills has remained fixed. Might an expansion in the supply of Altcoin have a similar depressing effect on the price of Bitcoin?’’

However, they don’t believe that bitcoin will drop to zero but a huge amount of investors will also likely choose other cryptocurrencies with the ever-growing demand.