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A recent research published by the Federal Reserve Bank of ST. Louis further strengthens the notion that the prices of cryptocurrencies are extremely volatile and, as such, cannot be predicted correctly. The ongoing bear market at the crypto sphere has given rise to several predictions and conclusions about the crypto market, especially the Bitcoin market in a sphere where many other cryptocurrencies (altcoins) exist as well.
Some people are of the belief that the crypto market was a bubble waiting to be popped. They believe digital assets have reached their worst and cannot come back from here; others (mainly crypto enthusiast) believe that the crypto market is just experiencing a bear market like other times and would be back soon. Some experts predict that the bear market will wear off soon enough and crypto prices, especially the Bitcoin price, will skyrocket to a new peak that has never been recorded.
While these two extremes have facts and figures to support their claims, the Economic Research arm of the Federal Reserve Bank of ST. Louis believes that any of these groups can be either right or wrong because the prices of cryptocurrencies are highly volatile and unpredictable. The article explains the two possible prospects of Bitcoin as an investment. The bullish theory being that the price of Bitcoin is sure to rise indefinitely because of its capped supply and rapidly increasing demand; the bearish case, on the other hand, is a complete opposite stating that Bitcoin price is sure to fall to zero because it is a worthless asset.
A close look at each theory proved both extremes wrong, indicating that the price of Bitcoin is subject to volatility and cannot be predicted. Yet, the research does argue that an abundance of altcoins will likely to result in a downtrend of all cryptocurrency prices.
The research team explained that the first theory – the Bullish Theory – is too optimistic. They explain that the U.S. dollar equivalent of Bitcoin depends largely on its exchange rate relative to the growth of other cryptocurrencies. Contrary to the Bullish Theory’s suggestion that Bitcoin price will appreciate or settle at a plateau relative to its competitors, they explained that there is a chance that expansion in its competitors, more altcoins, may have a depressing effect on its price.
Analyzing the second theory (The Bearish Theory), the research team explain that although Bitcoin – like any other commodities – trades above its fundamental value, there is no chance that it can ever fall to the zero mark. Using the U.S dollar and the price of Gold as examples, they were able to prove that the value of these commodities is based on the value that consumers place on them. Consequently, consumer’s place a value on Bitcoin because it offers them uninterrupted access and decentralized database management. As such, it is safe to conclude that its value can never reach the zero mark as long as its consumers still place a value on it.
Analysis of both theories proved the theories wrong, which indicates that Bitcoin’s price prediction is almost impossible because it is highly volatile. Yet, the research team does assert that the “Bitcoin’s price is not likely to fall to zero,” and that a profusion of other altcoins may drag down the entire crypto market, primarily Bitcoin.