Federal Reserve Blames Altcoins for Dragging Down the Bitcoin Price

[cybersofts]

The Federal Reserve Bank of St. Louis has released an article today about Bitcoin. In it, the bank notes that the price of Bitcoin has three potential futures: indefinite, infinite appreciation; zero; or somewhere in between. They believe it will be somewhere in between.

The authors, David Andolfatto and Andrew Spewak, conclude that one of the factors dragging down the price of Bitcoin is an ever-expanding supply of alternatives. Bitcoin is an inherently speculative and volatile asset. A fixed supply doesn’t mean an ever-increasing value. Demand determines value, after all. Other tokens are frequently launched which have properties attractive to a portion of the market. If Bitcoin was still the only cryptocurrency, something which was only the case for a very brief time in its history, this money would probably go into Bitcoin.
Bitcoin Maximalists Ignore Important Realities

However, the Bitcoin maximalist argument that Bitcoin will simply usurp any improvements by other tokens has never come to fruition. There are even fewer dApps and users of dApps via Bitcoin’s blockchain than much later entrants like Tron.

The Federal Reserve economists write:

    Consider the following thought experiment. A restaurant selling meals for $10 will happily accept payment in the form of one Hamilton bill ($10) or two Lincoln bills ($5). That is, the nominal exchange rate between Hamilton and Lincoln bills is 2:1. Now, suppose that the supply of Lincoln bills is increased but the supply of Hamilton bills remains the same. The exchange rate remains unaffected […] That is, 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. Might an expansion in the supply of Altcoin have a similar depressing effect on the price of Bitcoin?

There are other complicating factors to the price of Bitcoin. On the one hand, it is the cryptocurrency with superior liquidity. This makes it the on-ramp and off-ramp for many other cryptocurrencies. Does anyone remember when ICOs were primarily conducted for Bitcoin? Nowadays Ethereum performs that function. Importantly, ICOs fueled demand for Ethereum through 2017 and 2018. Ethereum has a large supply and may never stop producing new units. Therefore, its lower values make sense: the more available something is, the less value it is.


Contiune reading: https://www.ccn.com/federal-reserve-blames-altcoins-for-dragging-down-the-bitcoin-price/

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[hatshepsut93]

    Consider the following thought experiment. A restaurant selling meals for $10 will happily accept payment in the form of one Hamilton bill ($10) or two Lincoln bills ($5). That is, the nominal exchange rate between Hamilton and Lincoln bills is 2:1. Now, suppose that the supply of Lincoln bills is increased but the supply of Hamilton bills remains the same. The exchange rate remains unaffected […] That is, 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. Might an expansion in the supply of Altcoin have a similar depressing effect on the price of Bitcoin?

This is a bad analogy, because Bitcoin and alts are different currencies. If you look at market data, there's no precedents of Bitcoin dropping in price as the result of some altcoin crashing or an ICO attracting a huge amount of investment.

Bitcoin crashed because it was in a speculative bubble, people got euphoric and though that Bitcoin is going straight to $100,000, but it soon became clear that it was just another cycle, similar to those that happened years before. There's no need to come up with conspiracies or complex explanation when it's pretty clear what actually happened.

[buwaytress]

Crypto as a whole was taken down by the sheer amount og altcoins popping up, that I believe. But there were just as responsible for taking it to the most recent peak. Maybe Bitcoin price is a little lower than fair value now, but it was surely a lot higher than fair value at ATH. That's as much speculative bubble behaviour as any textbook can explain.

Did altcoin frenzy result in that? No. It had a hand in exaggerating prices either high or low, but really, all that movement is just a distraction from where Bitcoin is going and was always going to go.

[eminemcookie]

    Consider the following thought experiment. A restaurant selling meals for $10 will happily accept payment in the form of one Hamilton bill ($10) or two Lincoln bills ($5). That is, the nominal exchange rate between Hamilton and Lincoln bills is 2:1. Now, suppose that the supply of Lincoln bills is increased but the supply of Hamilton bills remains the same. The exchange rate remains unaffected […] That is, 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. Might an expansion in the supply of Altcoin have a similar depressing effect on the price of Bitcoin?

This is a bad analogy, because Bitcoin and alts are different currencies. If you look at market data, there's no precedents of Bitcoin dropping in price as the result of some altcoin crashing or an ICO attracting a huge amount of investment.

Bitcoin crashed because it was in a speculative bubble, people got euphoric and though that Bitcoin is going straight to $100,000, but it soon became clear that it was just another cycle, similar to those that happened years before. There's no need to come up with conspiracies or complex explanation when it's pretty clear what actually happened.

It's a terrible example because it assumes that the BTC/ALT price will remain static when history has clearly shown that not to be the case. It is also only assuming that the two things in consideration have one purpose only and that is as a currency.

[Rapidgator]

I can't uderstand the logic of Federal Reserve. How altcoins can drag down the bitcoin price? Right now we have seen that really Bitcoin (BTC) has got big infuence on what is going on with the whole cryptocurrency market and when the BTC is going down than mainly most altcoins is going even lower in case of X/BTC pair.

[fabiorem]

I agree with them.

Most altcoins are scams.

[wuvdoll]

Crypto as a whole was taken down by the sheer amount og altcoins popping up, that I believe. But there were just as responsible for taking it to the most recent peak.

You are contradicting yourself with these two statements. Or, do I need to understand like altcoins were good when bitcoin was rising but not in down-fall market. How it will be possible ? I believe altcoin space got benefited while bitcoin was attractive enough as most crypto adopter also value diversification principles. But in current markets, altcoins are misleading investors with their fake bumps, like how BCH/ETH/Waves did in very recent times.

Most altcoins are scams.

What bitcoin can do when some altcoins are truning scam ? Investor will lose hope on bitcoin too ? I do not think so. Some investors may switch over to bitcoin permanently like they will never prefer going back to altcoin investment for rest of their life. I guess altcoin scams are good for bitcoins.

[BrewMaster]

it was not ALL because of altcoins but they deffinitely contributed to the bitcoin price drop. but saying they "dragged bitcoin price down" is simply false. bitcoin entered a bubble and that needed bursting and that is exactly what happened. although it then dragged on and became a lot bigger than it should have become but the heart of it was because of that bubble.

altcoins only come in when the pumpers dump them on large scale (like the $100-$150 dumps that ETH had last year) and the sheer amount of money that is fleeing the market pulls bitcoin down too because a lot of it exits through bitcoin back to fiat specially from shitcoins that don't have fiat market..

[LeGaulois]

I am confident the market has been manipulated otherwise the crash couldn't be so big and so long. In my opinion, it has not been done by creating a bunch of shit coins. Who knows if the FED is trying to blame someone else to hide its own manipulations. It looks more plausible that the FED manipulated the market than a wave of shitcoins

[Upgrade00]

   Consider the following thought experiment. A restaurant selling meals for $10 will happily accept payment in the form of one Hamilton bill ($10) or two Lincoln bills ($5). That is, the nominal exchange rate between Hamilton and Lincoln bills is 2:1. Now, suppose that the supply of Lincoln bills is increased but the supply of Hamilton bills remains the same. The exchange rate remains unaffected […] That is, 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. Might an expansion in the supply of Altcoin have a similar depressing effect on the price of Bitcoin?

I do not agree with this postulation, it assumed that bitcoin and the growing number of altcoin all have the same utility and cabbe used interchangeable. This is not the reality, the vast majority of altcoins and barely accepted by the cryptocurrency community, and the top 20 altcoins hold a very large percentage of the entire cryptocurrency market cap.

[buwaytress]

Crypto as a whole was taken down by the sheer amount og altcoins popping up, that I believe. But there were just as responsible for taking it to the most recent peak.

You are contradicting yourself with these two statements. Or, do I need to understand like altcoins were good when bitcoin was rising but not in down-fall market. How it will be possible ? I believe altcoin space got benefited while bitcoin was attractive enough as most crypto adopter also value diversification principles. But in current markets, altcoins are misleading investors with their fake bumps, like how BCH/ETH/Waves did in very recent times.

I'm not contradicting myself... I'm saying that, if altcoins are to blame for "bringing down the whole market", then they must equally be given credit for the crypto market bullrun of 2017.

The problem I'm saying is that it's wrong to put the blame on alts, or anything for that matter... people have been blaming speculators, alts, whales, manipulations. But if you think about it, these were all equally responsible for inflating the market back in 2017, and no one was pointing fingers at them at the time. No, we were praising them and patting them on the back.

You're talking about misleading and fake bumps now? You're saying 2017 was all genuine?

[YuginKadoya]

Like all other members here, I think that Altcoin should not be blamed for dragging down the value of bitcoin, They should look at the current market situation right now and that is the bearish market that we are in right now, And I know the struggle for all digital currencies especially the Altcoins that are now delisted by many exchanged sites, And ICO projects that not reaching the Soft and Hard cap, Do you think what is the most affected by this kind of market right now? I really think the most affected in this situation are the Altcoins that are still surviving.

[kolesozw]

The article is full of bad analogy and non-sense. But you can't expect something good about Bitcoin of some State bank.
Some altcoins are scam, but they are supported only by blindly investing people who will loose their money in one way or another.
And lately, the Bitcoin is less volatile than Apple and Top 5.

[bbc.reporter]

This article might have another clickbait for a title hehehe. Does the Federal Reserve of St. Louis' opinion in their released article share the opinion of the whole Federal Reserve? For those who do not know, the Federal Reserve Bank of St. Louis is only 1 of 12 regional Reserve banks in America.

In any case, where is the link to the Federal Reserve's article? I do not see it in ccn.com's article. Also, ccn's article appears like a hype story for Ethereum, Tron, Neo and Aelf.

[bitbunnny]

This doesn't look relevant to me. It's an opinion of one local branch of Federal Reserve, so I would call it as an attitude of Federal Reserve in general. Also, it doesn't sound like an expert opinion and it's a bit controdictrary. And I definetely don't agree that altcoins are to blaim because of Bitcoin price, that something like this isn't relevant theory it was proved many times in the past before.

[upsidedown75]

That's the worst example I have ever seen. Altcoins are not the same money as bitcoin. One 5 dollar bill is still 5 DOLLARS like as in currency of america, us dollars. One ten dollar bill is also the currency itself and they are the same money, 2 5 dollars make one 10 dollars. However, the difference between 10 dollars and 10 euro always changes, constantly changes, usually quite stable and doesn't change like crazy but no matter what happens its not always the same and changes every second.

Altcoins and bitcoins are like that, they are like dollars and euros, bitcoin is dollar whereas euro is ethereum and I am sure there are Zimbabwe money in altcoins as well but they are not 5 dollar bill and 10 dollar bill of the same currency at all, they are different currencies.

[1Referee]

Crypto as a whole was taken down by the sheer amount og altcoins popping up, that I believe. But there were just as responsible for taking it to the most recent peak.

You are contradicting yourself with these two statements. Or, do I need to understand like altcoins were good when bitcoin was rising but not in down-fall market. How it will be possible ? I believe altcoin space got benefited while bitcoin was attractive enough as most crypto adopter also value diversification principles. But in current markets, altcoins are misleading investors with their fake bumps, like how BCH/ETH/Waves did in very recent times.

It's not contradicting, it's what I believe to be the reality, especially with what happened back in 2017.

People wonder how someone could have bought Bitcoin and Ether around their peak levels, but the fact of the matter is that most people didn't buy to invest in either of those coins, but to invest straight into ICO's. It doesn't matter what price you buy at, all you need to do is to buy x amount worth of Bitcoin or Ether to get your share of the ICO you invest in.

Whenever we see another ICO bubble develop, you can expect the same to happen again.

[figmentofmyass]

It's not contradicting, it's what I believe to be the reality, especially with what happened back in 2017.

People wonder how someone could have bought Bitcoin and Ether around their peak levels, but the fact of the matter is that most people didn't buy to invest in either of those coins, but to invest straight into ICO's. It doesn't matter what price you buy at, all you need to do is to buy x amount worth of Bitcoin or Ether to get your share of the ICO you invest in.

Whenever we see another ICO bubble develop, you can expect the same to happen again.

do you expect another ICO bubble in the future? i've seen some people express the opinion that the regulatory crackdown has killed the odds of that.

personally, i think it's possible though. fundraisers will adjust their models towards STOs to dodge the perceived risks of ICOs. assuming bullish underlying market conditions, greed will probably take over again.

[pooya87]

It's not contradicting, it's what I believe to be the reality, especially with what happened back in 2017.

People wonder how someone could have bought Bitcoin and Ether around their peak levels, but the fact of the matter is that most people didn't buy to invest in either of those coins, but to invest straight into ICO's. It doesn't matter what price you buy at, all you need to do is to buy x amount worth of Bitcoin or Ether to get your share of the ICO you invest in.

Whenever we see another ICO bubble develop, you can expect the same to happen again.

do you expect another ICO bubble in the future? i've seen some people express the opinion that the regulatory crackdown has killed the odds of that.

personally, i think it's possible though. fundraisers will adjust their models towards STOs to dodge the perceived risks of ICOs. assuming bullish underlying market conditions, greed will probably take over again.

most probably we won't see any ICO bubble ever again because these silly methods of taking people's money only work once. but we will see other similar methods of taking people's money!
basically the altcoin market has always been mostly like a gambling game for most people. they go into these "groups" which may be called a premined altcoin, an ICO, a STO,... then put their money into the bowl of the owner. sometimes they get lucky and make profit and sometimes they lose. but they continue playing the new games as they come along and discard the old ones. for example these days if a coin is 100% premined people won't even look at it twice. but a couple of years ago these things were as hot as ICO in 2017.

[Text]

For those who said that alternative coins should not blame on dragging the bitcoin price down? So who or what is responsible for this? Well, for me, this is not solely because of alts, as we can see the market changes, bitcoin affected most altcoin. When it turns red, we can also the color red below.