Is Bitcoin a bad investment in 2023?
Bitcoin is a digital asset that has gained significant attention in recent years. Like any investment, it carries some level of risk. Some people see bitcoin as a potential investment opportunity, while others view it as more of a speculative bet. The bear market of 2023 in addition to the dramatic fall of many crypto firms like FTX, Luna, Voyager, BlockFi, etc, has proven to be catastrophic for the Bitcoin.
The entire crypto market is seeing a general negative approach and sentiment. Users are withdrawing funds, tokens and blockchains are losing money, firms are crashing and the asset class of digital currencies like crypto is receiving a lot of bad publicity. In such an environment, it is a given that you as a concerned and vigilant user are wondering whether or not Bitcoin, the original crypto currency, is a good investment going into 2023.
While nothing can be set in stone when it comes to cryptocurrency, we can make our speculations and guide you towards making an informed decision.
In this article, we will give you our opinion on the future of Bitcoin and whether or not it is a viable option for investment in 2023.
What we are going to learn?
What is Bitcoin?
Bitcoin is one of the most popular commodities in the crypto market, and you are sure to have heard of it even if you are just entering the business. Bitcoin is a decentralized digital currency that uses cryptography for security and is not controlled by any government or financial institution. It was created in 2009 by an unknown individual or group of individuals using the pseudonym Satoshi Nakamoto.
Transactions with bitcoin are made using bitcoin wallets, which are digital wallets that allow users to send and receive bitcoin. Transactions are recorded on a public ledger called the blockchain, which allows anyone to view the transactions but ensures that the identity of the parties involved is protected.
Bitcoin is often referred to as a “cryptocurrency,” as it uses cryptography to secure and verify transactions. It is decentralized, meaning it is not controlled by any government or financial institution. Instead, it relies on a network of computers around the world that work together to validate transactions and add new blocks to the blockchain.
Want to learn more? Read this: What is Bitcoin and how does it work?
The fall in the price of Bitcoin
If there was to be given an example to highlight the unpredictable nature and volatility of cryptocurrency, then this year would be an appropriate one. The value of the most toted and reputed crypto token Bitcoin fell in terms of market capitalisation by around 65% through 2022. The BTC investors have also had to consequence of these market fluctuations. A lot of them have incurred massive losses while some have even lost their entire life savings. According to statistics, approximately over 50 per cent of BTC investors are facing losses today.
Early this year the price of Bitcoin was somewhere around $45,000. The plummet from that value is almost unbelievable. Right now, the price is around $16,662. This means that in a matter of only six months, the price fell by almost two-thirds of its value. In December 2022, Bitcoin was down 75% from its all-time highs.
Reasons for the drop in Bitcoin prices in 2022
There have been many reasons that have been assumed to cause a dip in the prices of Bitcoin, which reached its all-time high of $64,800 on April 14, 2021. Some of these reasons are:
Global economy and Inflationary fears
The global economy refers to the economic system that encompasses all of the world’s countries and their interconnections. It is made up of national economies, which are the economic systems of individual countries, and international trade, which is the exchange of goods and services between countries.
The global economy is complex and interconnected, with economic activity in one part of the world often impacting other parts of the world. For example, a recession in one country can have ripple effects on other countries through reduced demand for their goods and services, or through the impact on their financial markets
The global economy has undergone significant changes in recent decades, with the rise of globalization, technological advancements, and the increasing interconnectedness of national economies. These changes have brought both opportunities and challenges, and the global economy continues to evolve and adapt to changing circumstances
The coronavirus pandemic was one such event that took a major hit on world economies and the measures taken have been considered major reasons to cause inflation in the United States of America.
According to The Motley Fool, a private financial and investing advice company, “The unprecedented levels of fiscal and monetary stimulus the government and the Federal Reserve deployed to help support the U.S. economy during the coronavirus pandemic, coupled with the persistent supply chain issues and shortages caused by geopolitical conflicts, have combined to produce high inflation in the U.S. and around the world over the past year and a half. To combat this, the Federal Reserve has been hiking its benchmark interest rates aggressively, which has caused investors to sour on riskier assets, a category that Bitcoin and cryptocurrencies firmly belong in. And this is one of the main reasons why prices for these assets have cratered in 2022.”
The FTX Meltdown
Without a doubt, the collapse of FTX was one of the most stand out events in 2022. FTX went from being once the world’s top crypto exchange to filing for bankruptcy. The downfall had ripple effects on the entire market and sent shivers of panic throughout the industry. The developments with FTX have surfaced the many complications and issues attached to the world of cryptocurrency. Apart from the obvious drop in prices that the collapse caused, it has also initiated the thought process of developing a clear framework for cryptocurrencies to work on.
The War in Ukraine
The war in Ukraine has proven to be one of the major geo-political reasons to cause a downfall in the prices of many digital assets including Bitcoin. Geopolitics, or the study of the relationship between political power and geographic space, can affect the cryptocurrency market in several ways.
One way geopolitics can impact cryptocurrency is through government regulations and policies. Different countries have different approaches to regulating cryptocurrency, and changes in these regulations can impact the perceived risk and attractiveness of investing in cryptocurrency. For example, if a government imposes strict regulations on cryptocurrency, it may discourage some investors from buying it, while a government that takes a more lenient approach may encourage more people to invest.
Geopolitical events and tensions can also impact the cryptocurrency market. For example, if there is a political crisis or military conflict in a country, it may lead to increased demand for cryptocurrency as a safe haven asset, as people seek to protect their wealth from potential instability. Conversely, if there is increased political stability in a region, it may lead to decreased demand for cryptocurrency as an alternative to traditional assets.
Why is Bitcoin so volatile?
One reason for the volatility of Bitcoin is that it is a relatively new asset that has not yet been widely adopted. This means that there are relatively few buyers and sellers of Bitcoin, and the market is not as liquid as other asset classes such as stocks or commodities. This limited liquidity can make it more difficult to find buyers or sellers when you want to trade, which can lead to price fluctuations as supply and demand fluctuate.
Another factor that can contribute to the volatility of Bitcoin is market speculation. Many people buy and sell Bitcoin as a speculative investment, hoping to profit from changes in its price. This speculation can drive the price of Bitcoin up or down, depending on the sentiment of the market. In addition, the hype surrounding Bitcoin and other cryptocurrencies can create an atmosphere of hype and speculation, which can further increase the volatility of the asset.
Finally, news and events can also have an impact on the volatility of Bitcoin. For example, regulatory changes or security breaches can affect the perceived risk of investing in Bitcoin, which can in turn affect its price. Similarly, media coverage of Bitcoin and other cryptocurrencies can affect investor sentiment and influence the price of the asset.
Learn more about what are the Critical Determinants of Bitcoin.
Upsides of Bitcoin
While we have seen the many issues associated with and impacting bitcoin, we mustn’t neglect some factors that work in favour of the token as an investment vehicle.
Harnessing of Bitcoin
Many blue-chip colonies and prominent investors are looking to gain from Bitcoin. Michael Saylor who is one of the founders of MicroStrategy, still remains extremely bullish on the crypto token. Recently Fidelity Management conducted a survey that highlighted how out of 1,052 asset management companies spread throughout the continents of Europe, North America, and Asia, companies that purchased bitcoins in the first half of the year amounted to 58 per cent and 74 per cent planning to accumulate more in the near future. BlackRock, Google’s parent company Alphabet, and MasterCard are just a few more major companies investing in bitcoin.
Also read: Which Companies are Investing in Bitcoin?
The Bitcoin cycle
The four-year Bitcoin cycle is a phenomenon that has been observed in the price of Bitcoin, where the price tends to rise significantly in the first half of the cycle, followed by a slower rise or a period of stability in the second half. This cycle is thought to be related to the halving of the block reward, which occurs approximately every four years.
The block reward is the number of Bitcoin that miners receive for adding a new block to the blockchain. When the block reward is halved, the number of Bitcoin that miners receive for each block is reduced by 50%. This reduction in the block reward has the effect of decreasing the supply of new Bitcoin entering the market, which can increase the price of Bitcoin.
There have been three halvings so far, in 2012, 2016, and 2020. Many analysts do estimate that maybe 2023 would mark the beginning of a new accumulation phase.
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To conclude: Is Bitcoin a bad Investment in 2023?
In the past few years, Bitcoin has witnessed the highest of highs and also the lowest of lows. While 2020 and 2021 saw few of the best years for Bitcoin, 2022 proved to be quite turbulent and rough. As a result, the market is filled with speculations and negative sentiments.
It is important for you to analyse the pros and cons of investing in the asset whilst looking at the matter with an unbiased lens. You must be sure of doing proper research before making any concrete financial decision.
“Be fearful when others are greedy, and greedy when others are fearful.” – Warren Buffet
According to me, it is times like this, when you should be investing in Bitcoin. Today, on January 26th, 2023, BTC is already trading around 23500USD and showing early signs of reversal. Since BTC is a volatile asset, you should consider taking the DCA route. You could now invest 33% of what you wanted to invest, and rest (6% per month) can be done in small parts over the entire year. This will spread your buying cost, and in long run, it should do you good.
Hence, we do not think Bitcoin in 2023 is going to be a bad investment in long run. However, there may be short term losses which one should be ready to accept and continue investing in a disciplined manner.
Personally 2023 could be the last painful year for Bitcoin and major altcoins. Crypto in general from 2024 should start going up, if Bitcoin halving cycles are to be relied upon.
Disclaimer: Kindly understand, this is just our opinion and we are just sharing it for educational purpose only. Investing in Bitcoin and other cryptocurrencies is subject to market risk and should be done only after doing your own due diligence or consulting a financial advisor.