Is Bitcoin's Largest Obstacle to Mass Adoption Other Cryptocurrencies?
Bitcoin has had a very interesting year and a half. Its price soared from $1000 to $20,000 and later crashed down to $3,600. Many other cryptocurrencies followed Bitcoin's lead. Ethereum rose from $60 and skyrocketed to just below $1,400, and later crashed to $150. Many different explanations rose for cryptocurrency's plummet, many blamed regulations and governments & banks meddling. Others claim it was a bubble based on hype, akin to beanie babies in the 90's. Earlier this week the Federal Bank of St. Louis released a research paper with a very interesting claim: altcoins are partially to blame for Bitcoin's drop.
"We think this idea is too optimistic even if one grants that its supply is fixed and its demand is likely to grow. The U.S. dollar price of Bitcoin will also depend on how its exchange rate relative to other cryptocurrencies evolves over time in the face of an ever-expanding supply of alternative cryptocurrencies, which we refer to as Altcoin."
So, Are Altcoins to Blame?
In layman's terms, despite most if not all cryptocurrencies have a limited number of tokens or coins in circulation, the number of altcoins in existence is ever expanding. This makes the number of coins or tokens in circulation irrelevant as the ecosystem is ever-expanding to infinity.
Bitcoin alone had 2 notable hard forks in the past 8 months, giving birth in a way to Bitcoin Cash & Bitcoin SV. This leads to the question: Are forks and alts keeping Bitcoin low?
As per the Federal Bank of St. Louis, the answer seems to be: Yes.
"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."
While banks and governments might have played a part in the drop, altcoins are possibly another big reason.
Written by Jonathan Ganor
Writer & cryptocurrency aficionado