Federal Reserve Research Paper: Abundance of Altcoins will Devalue BTC

By Warren Hayes | January 20, 2019

The St Louis arm of the US Federal Reserve Bank has predicted a somewhat pessimistic future for Bitcoin.

In its published economic research paper which tries to assess Bitcoin’s long-term investment benefits, it believes that the rapid growth of altcoins will “place significant downward pressure on the purchasing power of all cryptocurrencies, including Bitcoin.

While it defines a bullish outlook as one where Bitcoin will appreciate “indefinitely” from “capped supply and an ever-growing demand”, the St Louis Fed believes this scenario to be “too optimistic”.

On the opposite end of the spectrum, it thinks that the market will realize “Bitcoin has no fundamental value” sooner or later. In the worst possible case this could theoretically mean “Bitcoin’s price will fall to zero, as it’s an intrinsically worthless asset”.

However, it does not think the situation will likely become this dire in reality as many other securities also trade “above what might be considered their fundamental value”.

The paper concludes the future of Bitcoin as somewhere in between, though it stands by a more bearish position.

It argues that market movements of such an unbacked asset like Bitcoin will likely lead to much volatility, making it “inherently unforecastable”.

Coupled with a “flood” of altcoins in the market, the purchasing power of all cryptocurrencies in general, not just Bitcoin, will be pressured to moderate significantly.

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