Federal Reserve Bank Says Altcoins are Holding Down the Value of Bitcoin’s (BTC) Price

Federal Reserve Bank of St. Louis has recently issued a research study which states that competing Altcoins are putting downward pressure on Bitcoin’s value.

There are two perspectives analyzed by the paper both are which represents extreme scenarios. The first one coming from Bitcoin proponents which says that the limited supply will lead to the increased demand for the asset and on the other end are the skeptics who think that Bitcoin price is destined to fall to zero. The authors of the paper think that it is “more likely to remain bounded between these two extremes.”

David Andolfatto and Andrew Spewak, the authors of the papers perfectly highlight this problem through a thought experiment:

“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?”

They go on to acknowledge the fact that this template can’t be applied to virtual assets. Although they can threaten Bitcoin’s fiat value.

The report is concluded by the authors state:

“While Bitcoin's price is not likely to fall to zero, the prospect of a flood of Altcoin competing with Bitcoin in the wealth portfolios of investors is likely to place significant downward pressure on the purchasing power of all cryptocurrencies, including Bitcoin.”

Satoshi had intended for Bitcoin to overcome problems within itself through iterations of the chain. However, it seems like each problem is being solved by a new chain. This has led to the creation of multiple altcoins that address some of the other problems with Bitcoin, but none of them are absolute solutions.

The mainstream adoptability of cryptos has been dominated by other blockchain products. Irrespective of the volatility, demand for cryptographically secure payment systems is not popping. However, it is predicted that people will encounter blockchain technologies through banking applications and other decentralized apps.

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