Central Bank of St. Louis published an article about long-term prospects of Bitcoin
Home News Central Bank of St. Louis published an article about long-term prospects of Bitcoin
Marcus Misiak –
The Federal Reserve Bank of St. Louis, one of the American Central banks, has published an article with the topic “what are the long-term prospects of Bitcoin as an investment?”. As a result, the authors come to the conclusion that the real value of Bitcoin is somewhere between Zero and an infinitely increasing price.
The bullish case is that Bitcoin is going to rise because of limited supply and a growing demand for an indefinite period of time in the price. The bearish case is that the price of Bitcoin will drop to Zero, because it is a worthless asset. We are of the opinion that the future price path is more likely to remain in between these two Extremes.
The authors, David Andolfatto and Andrew Spewak describe that one of the factors depressing the price of Bitcoin could be a constantly growing range of Altcoins. The limited number of BTC does not mean, according to the researchers, that the value is infinite rise, because the demand determines the value and the demand is also of external factors (for example, the Altcoins). If Bitcoin would be the only crypto-currency, which was only for a very short time in his history of the case, would flow the money of the investors likely to be exclusively in Bitcoin. Other Coins competing currencies, the demand for Crypto:
We think this idea is too optimistic, even if it is, that the supply is fixed and demand is likely to rise. The US Dollar price of Bitcoin is currencies depend on the exchange rate in comparison to other crypto-currencies developed over time, in the face of a constantly growing supply of alternative Crypto.
Furthermore, the Fed of St. Louis presents an interesting mind game. Bitcoin and Altcoins behavior in the relationship as well as 5 – and 10-US-Dollar-Bills when the Central banks to issue new money, and the currency so that inflationary?
Consider the following thought experiment. A Restaurant that sells meals for $10, gladly accepts payments in the Form of a Hamilton-money licence (10 US Dollar bill) or two Lincoln-accounts (5-American-Dollar-note). That is, the nominal exchange rate between Hamilton and Lincoln invoices is 2:1. Now we assume that the supply of Lincoln-will be increased money, but the offer to the Hamilton-remains of money seem to be the same. The exchange rate remains untouched, so that the total nominal quantity of money is increased. The demand for money remains unchanged, must increase the price level. Consequently, neither a single Hamilton-money bill extends for two Lincoln-money from bills to buy a meal that now costs more than 10 dollars. That is, the increase in the supply of Lincoln-money seem has seem to be a decline in the purchasing power both of Lincoln-money as well as Hamilton-money seem to have led, although the offer to the Hamilton-money seem to have remained fixed. Could lead to an expansion of the offer of Altcoin a similar dampening effect on the price of Bitcoin?
The bearish case for Bitcoin
In the article, the authors also consider the intrinsic value of Bitcoin and write:
This Outlook is based on the assumption that Bitcoin has no fundamental value and that the market will recognize this fact sooner or later. From our point of view, one can accept that Bitcoin is above its fundamental value, without claiming that his reason is a Null value. In fact, many securities to trade beyond what could be regarded as its fundamental value. So Gold is, for example, about its value in terms of its industrial applications. The US Dollar is above its fundamental value in fulfilling U.S. tax obligations. The premium some people are willing to pay for Gold and the US Dollar, reflects the value that these objects have as an exchange media. The market value of these objects would fall, but not fall to Zero, it should disappear this premium suddenly.
Bitcoin offers people and users with two functions: as a money storage and transfer system and provides two main features: protection against unauthorized access, and remote management. The first property means that no one can prevent a user from sending any amount of Bitcoin from one account to another. The second property means that the Protocol depends on the existence of a delegated authority for the account management and money transfer. The basic demand for Bitcoin is derived from the fact that there are at least some people who appreciate these characteristics. This basic demand provides a lower bound for the price of Bitcoin.
After ten years, Bitcoin will remain but for the time being, more of a speculative asset and a store of Value. The Trend, the Economists of the Federal Reserve identify, seems to be representative: no one knows the actual value of Bitcoin.