Issuance Of Crypto Assets Will Push Bitcoin Lower, Claims St. Louis FED

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For nearly a decade, save for early-2018, Bitcoin (BTC) has ruled the crypto market with an iron fist — dominating its altcoin brethren. Yet, as blockchain technologies propagate, with tokens becoming more common and present than ever, analysts have claimed Bitcoin’s mostly-unquestioned hegemony will begin to come under fire.

Altcoin Flood May Put Downward Pressure On Bitcoin

The research arm of the Federal Reserve Bank of St. Louis has long been interested in cryptocurrencies. The arm of the United States’ central bank first published a paper on virtual currencies in 2014, and since then, the economic entity has continued to churn out analysis pieces on the crypto market.

In a recent piece titled “Whither The Price of Bitcoin?”, two St. Louis FED economists explain that the value proposition for BTC is bound between appreciating indefinitely, due to supply caps and swelling demand, and falling to zilch.

Using a hypothetical analogy involving Hamilton ($10) and Lincoln ($5) bills, it was explained that an increase in the supply of the latter would push the purchasing power of both banknotes lower. The entity wrote:

“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.”

While the researchers acknowledged that this scenario couldn’t be directly applied to digital currencies, they explained that altcoins may pose a threat to Bitcoin’s fiat value. With crypto assets getting issued left and right, with thousands of projects trying to capitalize on fleeting demand, the FED branch stated that BTC could get “depressed relative to where it would have otherwise been.”

Interestingly, the research group’s quip wasn’t baseless, as it drew attention to Bitcoin market dominance, specifically pointing out the measure’s collapse in recent years. And as such, the St. Louis FED noted that while BTC is unlike to capitulate to $0, a flood of altcoins may place “significant downward pressure” on the purchasing power of all cryptocurrency — Bitcoin included.

Crypto Report Begs To Differ

And while this somewhat bearish outlook is just theoretical, a report from A.T. Kearney, a multinational management consulting firm, expects for Bitcoin’s dominance to grow in 2019. Per previous NewsBTC reports, Kearney expects for the market capitalization BTC to “nearly” reach two-thirds of the aggregate value of cryptocurrencies. Citing reasons for this ~66% target, which isn’t out of the realm of possibility, the American firm purportedly stated that altcoins have “lost their luster” due to growing risk aversion tactics enlisted by retail investors.

Bitcoin fundamentals have also historically outperformed its counterparts on the lower rungs of crypto’s lengthy ladder. In 2018, the network saw adoption, fundamental growth, and development, with one Bitcoiner explaining that “by any metric [other than price], the system is improving and growing.” And with institutions focusing on BTC, maybe the asset’s prospects aren’t too dismal after all, in spite of the harrowing St. Louis FED report.

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