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Flood Of Altcoins Will Drive Down Bitcoin Prices: St. Louis Fed Reserve

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An ever-expanding supply of Altcoins would keep the price of Bitcoin and its market capitalization down, according to the St.Louis Federal Reserve.

A paper that the economic research wing of the St. Louis branch of the Federal Reserve bank recently published seeks to assess the prospects of bitcoin as a long-term investment.

"The bullish case is that Bitcoin will appreciate indefinitely due to its capped supply and an ever-growing demand. The bearish case is that Bitcoin's price will fall to zero, as it's an intrinsically worthless asset. We think the future price path is more likely to remain bounded between these two extremes," say David Andolfatto and Andrew Spewak, the authors of the report.

The U.S. dollar price of Bitcoin will depend on how its exchange rate relative to other cryptocurrencies evolves over time in the face of an ever-expanding supply of alternative cryptocurrencies, according to them.

An analysis of Bitcoin's market capitalization share among all cryptocurrencies during the past five years shows that the total value of Bitcoin has declined.

The paper states that the price dynamic of an unbacked asset will likely produce significant volatility and is "inherently unforecastable."

While Bitcoin's price is not likely to fall to zero, the prospect of a flood of Altcoin competing with Bitcoin in the wealth portfolios of investors is likely to place significant downward pressure on the purchasing power of all cryptocurrencies, including Bitcoin, the report says.

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