Topic: Federal Reserve Blames Altcoins for Dragging Down the Bitcoin Price - page 2. (Read 323 times)

It's a terrible example because it assumes that the BTC/ALT price will remain static when history has clearly shown that not to be the case. It is also only assuming that the two things in consideration have one purpose only and that is as a currency.

Crypto as a whole was taken down by the sheer amount og altcoins popping up, that I believe. But there were just as responsible for taking it to the most recent peak. Maybe Bitcoin price is a little lower than fair value now, but it was surely a lot higher than fair value at ATH. That's as much speculative bubble behaviour as any textbook can explain.

Did altcoin frenzy result in that? No. It had a hand in exaggerating prices either high or low, but really, all that movement is just a distraction from where Bitcoin is going and was always going to go.

This is a bad analogy, because Bitcoin and alts are different currencies. If you look at market data, there's no precedents of Bitcoin dropping in price as the result of some altcoin crashing or an ICO attracting a huge amount of investment.

Bitcoin crashed because it was in a speculative bubble, people got euphoric and though that Bitcoin is going straight to $100,000, but it soon became clear that it was just another cycle, similar to those that happened years before. There's no need to come up with conspiracies or complex explanation when it's pretty clear what actually happened.

The Federal Reserve Bank of St. Louis has released an article today about Bitcoin. In it, the bank notes that the price of Bitcoin has three potential futures: indefinite, infinite appreciation; zero; or somewhere in between. They believe it will be somewhere in between.

The authors, David Andolfatto and Andrew Spewak, conclude that one of the factors dragging down the price of Bitcoin is an ever-expanding supply of alternatives. Bitcoin is an inherently speculative and volatile asset. A fixed supply doesn’t mean an ever-increasing value. Demand determines value, after all. Other tokens are frequently launched which have properties attractive to a portion of the market. If Bitcoin was still the only cryptocurrency, something which was only the case for a very brief time in its history, this money would probably go into Bitcoin.
Bitcoin Maximalists Ignore Important Realities

However, the Bitcoin maximalist argument that Bitcoin will simply usurp any improvements by other tokens has never come to fruition. There are even fewer dApps and users of dApps via Bitcoin’s blockchain than much later entrants like Tron.

The Federal Reserve economists write:

    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?

There are other complicating factors to the price of Bitcoin. On the one hand, it is the cryptocurrency with superior liquidity. This makes it the on-ramp and off-ramp for many other cryptocurrencies. Does anyone remember when ICOs were primarily conducted for Bitcoin? Nowadays Ethereum performs that function. Importantly, ICOs fueled demand for Ethereum through 2017 and 2018. Ethereum has a large supply and may never stop producing new units. Therefore, its lower values make sense: the more available something is, the less value it is.


Contiune reading: https://www.ccn.com/federal-reserve-blames-altcoins-for-dragging-down-the-bitcoin-price/