St Louis Federal Reserve Publishes Report Explaning Why Bitcoin will not go to Zero
In a report published by the Federal Reserve Bank of St. Louis, the price of Bitcoin BTC is “not likely to fall to zero”. Considering both bullish and bearish scenarios, the future price of Bitcoin will most likely remain somewhere between the two.
David Andolfatto and Andrew Spewak consider that the bullish case is too optimistic considering Bitcoin’s ever-growing demand with limited supply. They also conclude that the bearish case of Bitcoin falling to zero is also unlikely to happen.
The world of cryptocurrencies is expanding: How will more options affect the value of Bitcoin? https://t.co/2jTRPvoxAT pic.twitter.com/1AwVuZeOIB
— St. Louis Fed (@stlouisfed) January 16, 2019
They also argue that an asset can clearly trade above its fundamental value, without that value ever being zero, with gold and the US Dollar cited as examples, that trade at above their fundamental value, for industrial applications or discharging tax obligations.
The U.S. dollar price of Bitcoin will ultimately be decided by the supply of altcoins and their exchange rate relative to Bitcoin. As more and more alternate cryptocurrencies show up, the price of Bitcoin is more likely to fall as is the case currently.
“The total value of Bitcoin has declined as a share of all cryptocurrencies.”
The report also talks about the fundamental value of Bitcoin terming it as a database management system that offers money storage and transfer. The value of Bitcoin comes from its properties of being permissionless and decentralized which generate the demand for it.
In conclusion, the authors merely point out that “the price dynamic of an unbacked asset is likely to be highly volatile and inherently unforecastable”.
To be fair, the report is pretty standardized and talks more about how economic theory will dictate Bitcoin and it’s gonna remain volatile for some time. As stated, it’s simply too difficult to forecast the future of Bitcoin.
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