The Federal Reserve Bank of St. Louis published a study on the long-term outlook for Bitcoin prices. It examines both “bullish” and “bearish” trends that can help the cryptocurrency to set new records or fix new lows.
Skeptics believe that the price of Bitcoin will eventually fall to zero. They argue that if a currency is not secured, it is essentially worthless. For them, it is only a matter of time. However, the Federal Reserve Bank of St. Louis argues that an asset may be traded above its intrinsic value, while its price will never be zero. For example, both gold and the US dollar are traded at a price that exceeds their intrinsic value in the case of industrial use or fulfillment of tax obligations. These assets are traded above their nominal value to reflect their value as a medium of exchange, but even without this price increase their value will not be zero.
The report assumes that Bitcoin is, in fact, a database management system that offers storage and transfer of money. Its fundamental value lies in the fact that it is not controlled by anyone and decentralized, which ensures the demand for it. As long as there are people who appreciate these features, the lower limit of the Bitcoin price will always be above zero. And as long as Bitcoin exists and has a nonzero value, other people can also use it. The Federal Reserve Bank of St. Louis comes to the following conclusion:
“The fundamental demand for Bitcoin is due to the fact that there are at least some people who appreciate its features [decentralization and lack of control]. This fundamental demand ensures that the price of Bitcoin does not drop to zero. "
The long-term “bullish” trend of Bitcoin revolves around an ever-increasing price due to limited supply and increasing demand. The problem with this, the report says, is that we must also take into account the Altcoins, whose number is essentially unlimited. For a bullish outcome, Bitcoin must be ranked higher than other cryptocurrencies so that its share in the cryptocurrency market remains about the same over time.
The St. Louis Federal Reserve Bank gives an example in which notes of $ 5 and $ 10 are considered, and in the case of an increase in supply for one of them, the cost of both decreases. But these banknotes have a fixed exchange rate, which does not apply to different cryptocurrencies. Thus, a potential problem may arise if investors mentally combine all cryptocurrencies together, in which case an increase in the supply of altcoins can lower prices in the entire market. The report concludes:
"Economic theory predicts that the price movement of an unsecured asset is likely to be very volatile and unpredictable in its nature."
Last year, the president of the Federal Reserve Bank of St. Louis said that cryptocurrencies "provoke the emergence of non-standardized currency in the US." At the same time, in the summer of 2018, the head of the US Federal Reserve said that "cryptocurrency has no intrinsic value."