Here’s why Bitcoin’s performance in the next year might resemble its bull run in 2021 rather than its fall in 2022.
Following a 59% return in 2020 and a 60% return in 2021, a 67% year-to-date fall was obviously not the sort of result that Bitcoin (BTC 3.92%) investors expected in 2022.
However, as the famous investor Peter Lynch once said, “the secret to earning money in stocks is not to be frightened out of them.” While Lynch was speaking about the stock market before bitcoin, his advice is still relevant for crypto investors today. During the current crypto winter, many investors have sold their crypto holdings, including Bitcoin, but for every selling, there is a buyer, and their Bitcoin was acquired by long-term investors who believe in Bitcoin’s future.
Rising interest rates and the end of monetary easing are the main reasons for Bitcoin’s decline. Based on recent events, the future of Bitcoin may look a lot more like 2021 than 2022. Here are three reasons why the top digital asset may do even better in the next year.
1. The institutions are on their way…
To begin with, more institutional investors are investing in Bitcoin since they recognize cryptocurrencies as a genuine asset class, with Bitcoin being the largest (with a market valuation of $300 billion) and most accessible.
According to Fidelity management’s annual Fidelity Digital Assets survey, 58% of institutional investors questioned purchased cryptocurrencies in the first half of 2022. In addition, 74% of those polled said that they wanted to invest in bitcoin at some time in the future. Fidelity questioned 1,052 institutional money managers from North America, Europe, and Asia, so this was no tiny sample size. These institutional investors have far more purchasing power than the ordinary individual investor, and their growing market presence may potentially push the price of Bitcoin higher.
Bank of New York Mellon (BK 4.68%), the oldest bank in the United States and the biggest custodian bank in the world, said that it will begin providing custodial services for Bitcoin owing to overwhelming customer demand.
The world’s biggest asset management, BlackRock (BLK 13.47%), announced a partnership with cryptocurrency exchange Coinbase (COIN 10.74%) to provide its Aladdin trading platform to customers who also owned Bitcoin on Coinbase.
2….As are blue chip corporations.
At the same time, Bitcoin use is increasing among large technology and financial enterprises. For years, detractors of Bitcoin have sought to dismiss its usefulness as an investment by claiming that it lacks a wide range of applications.
That is beginning to change, and rapidly. Alphabet (GOOG 7.75%) (GOOGL 7.58%) recently announced that customers would be able to pay for Google Cloud using Bitcoin and several other cryptocurrencies, while Mastercard (MA 6.85%) announced plans to collaborate with crypto firm Paxos to help traditional banks offer crypto trading and investing on their platforms.
3. A Fed rate rise softening might push Bitcoin.
The Federal Reserve started rapidly raising interest rates in 2022 in a bid to battle inflation, with undetermined outcomes. The rate rises did manage to smash several speculative, long-term assets, such as Bitcoin and tech stocks. Many market experts believe that the Fed will have to pause its rate rises in the near future after rising interest rates from 0.25% to 0.5% in March to 3.75 to 4% in a series of abrupt rate hikes. If the Fed eases off the gas and allows rates to settle, investors should feel more comfortable investing in assets like Bitcoin.
Skate to where the puck will be.
In the end, 2022 was a difficult year for Bitcoin investors. However, as an early-stage asset class that is still mostly speculative at this point, its value has held up better than may have been anticipated, given the upheaval that conventional financial markets have experienced. Looking forward, 2023 seems to be a significant year for Bitcoin. It should be far better than 2022, due to increasing investment from major institutional investors, more usage by global technology and financial enterprises, and a more accommodating monetary environment from the Fed. Bitcoin is still a hazardous investment, but I believe that having a modest allocation to Bitcoin in their portfolios will benefit all investors.