The Federal Reserve Bank of ST. Loius recently released a publication titled, “Whither the Price of Bitcoin?”. Here, an analysis is made between the bullish and bearish case of Bitcoin in order to ascertain its potentials as an investment in the long-run. Therefore, the conclusion arrived at is: “Bitcoin’s price is not likely to fall to zero”.
Comparisons Made Between Bullish and Bearish Run
David Andolfatto, Senior Vice President and Andrew Spewak, Senior research associate at the Federal Reserve Bank are the authors of the report. First, the duo made comparisons between the bullish and bearish trend. In the case of the former, Bitcoin’s price will keep on increasing due to its fixed supply and the high-level demand for it.
However, the Fed points out that this bullish case is too optimistic even with its fixed supply and high demand. According to the writers, the price of the digital asset will depend on how it evolves in relation to altcoins. They also outline that the increase in the supply of altcoins may not necessarily impact on the price of Bitcoin.
Bearish Run Predicts Bitcoin’s Price Hitting Zero
The Bearish trend, on the other hand, is reportedly one where the digital asset’s price will significantly devalue to zero and then make it a worthless asset. The Fed notes that this is a case where the virtual currency is believed not to offer any fundamental value. But then, Bitcoin has been trading above its fundamental value without claims being made that its value is zero.
Alternatively, the duo reveals that Bitcoin gains its fundamental value from the fact that it is a database management system. From their viewpoint, this is a system that has value as long as it has been tailored to meet the needs of a certain group. Therefore, Bitcoin meets the needs of people as a: “money storage and transfer system”. The fed also hints that the virtual asset’s properties include its decentralized nature and permissionless access.
Bitcoin Offers Fundamental Value to People
Consequently, the ability of Bitcoin to offer fundamental value to people, where a user can transfer money between accounts without the control of a central authority, has given the currency a fundamental demand. That being the case, this “fundamental demand provides a non-zero lower bound on the price of Bitcoin.”, says the report.
Despite these comparisons, their predictions for this virtual currency is that neither bullish nor bearish case will happen, but the digital asset will sit in between both. The Fed also adds that the price of Bitcoin will likely not hit Zero. Alternatively, the high supply of altcoins which as in competition with Bitcoin will put pressure on the purchasing power of all cryptocurrencies.
Asides, from the Federal Reserve Bank of ST. Loius, others have made predictions and stated their view. BTCNN on January 11 informed of Longhash’s report which says Bitcoin is a safe haven and not yet a digital gold.