Analysts of the Federal Reserve Bank of St. Louis published their vision of the possible long-run prospects of the first cryptocurrency. According to them, there are three scenarios for bitcoin.
Altcoins are to blame
According to researchers David Andolfatto and Andrew Spewak, bitcoin has three ways. It will either appreciate indefinitely due to its capped supply and ever-growing demand, or it will fall to zero as “intrinsically worthless assets” or it will remain bounded between these two extremes.
“Consider first the bullish case for Bitcoin. We think this idea is too optimistic even if one grants that its supply is fixed and its demand is likely to grow.”
One of the negative factors that suppress bitcoin is a growing number of altcoins on the market. The researchers note that altcoins may be of greater investment interest and even demonstrate technological superiority.
The second, bearish scenario is also unlikely.
“Consider now the bearish case for Bitcoin. This outlook is based on the view that Bitcoin has no fundamental value and that sooner or later the market will recognize this fact. <…> What is the source of the fundamental value of Bitcoin? Think about it this way. At its core, Bitcoin is a database management system. Database management systems can have a fundamental value if they are tailored to meet the needs of a given constituency. Bitcoin offers people money storage and transfer system with two key properties: (i) permissionless access and (ii) decentralized database management.”
The analysts add that bitcoin may be trading above its real value, but this situation is also observed in many securities and, for example, gold, which trades above its value as measured by its industrial applications.
“To sum up, economic theory predicts that the price dynamic of an unbacked asset is likely to be highly volatile and inherently unforecastable.”
There will be no recovery
The founder of Morgan Creek Digital Asset, Anthony Pompiano, believes that the price of bitcoin is unlikely to fall further. However, he doesn’t think “it’s over”, but the chances bitcoin returns to its levels of December 2017 are “probably low”.
I think that it’s likely we kind of just go sideways for a while right. You know, if you look at Bitcoin’s price, I don’t know maybe somewhere between like 2500-4500 for a good portion of the year is probably likely based on what we’re seeing.”