I remember in the alpha the way it worked was what the description suggests - when you ranked your Cryptarch up he wouldn't stop selling the old stuff but rather would have new slots selling higher-rarity engrams alongside it, eventually having several levels of stock in the list all at once. The highest I ever unlocked was Decoherent, but I think it went higher.
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Yeah, in the alpha it was possible to get blue items once you hit level 3 with the cryptarch. They were level 10 so we couldn't use them though
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Yeah, made me want to throw my ps4 out >.>