Bitcoin‘s (BTC -0.46%) In 2022, tide turned south when the token’s value fell by 64% and both investors and traders began to question the cryptocurrency’s future. Bitcoin has not been a hedge against inflation while lagging behind upgraded blockchains ether (ETH -0.80%) and Solana (SOL -2.13%) when it comes to utility.
As the calendar turns to 2023, will Bitcoin pick up momentum and return to $30,000, or will the bull be rolled over? Here’s what to watch out for this year.
The digital store of value is Bitcoin’s best bull case
Bitcoin has long been touted as a revolutionary new form of money, with its decentralized network and cryptographic security measures making it a safe and potentially disruptive force in the financial world. However, over the years it has become increasingly clear that Bitcoin’s true power lies not in its use as a medium of exchange or payment system, but as a store of value.
Security and network decentralization are arguably Bitcoin’s greatest strengths, and for those who want to park money to preserve value, it’s a decent option. But that may not be enough in 2023, especially as risk and leverage come to light among major crypto players.
The risk of liquidation is very real
While using bitcoin as a store of value may seem positive, it is not without its risks. A major concern is that large holders will be forced to sell. Michael Saylor’s company, MicroStrategy (MSTR -5.15%), holds 132,500 bitcoins at an average purchase price of $30,397 per token as of December 27. MicroStrategy also has $2.4 billion in debt, and its operations can’t support that. If Bitcoin continues to fall, there is a very real risk that MicroStrategy would have to liquidate its tokens.
Another concern is the Digital Currency Group Grayscale Bitcoin Trust (GBTC 0.83%) is now trading well below the net asset value of its bitcoin holdings, meaning there is an additional risk of liquidation. At the time of writing, the GBTC is trading at a discount of 45% to its NAV, a gap that has existed for some time.
GBTC discount or premium on YCharts NAV data
GBTC has attempted to change its structure to allow for more liquid trading and potentially redemption of the trust’s assets, which could mean selling bitcoin. This rebate could lead to mass liquidations and a flurry of selling in the market, eroding confidence in Bitcoin’s value.
The lack of bitcoin payments is a problem
Despite its hype and the attention it has received over the years, Bitcoin has yet to find widespread acceptance as a payment system. This is in contrast to other cryptocurrencies like Ethereum and Solana, which have more robust payment ecosystems and native smart contract capabilities.
Without a strong foundation as a payment system, it’s hard to imagine how Bitcoin can maintain its status as a leading cryptocurrency outside of those simply looking to store value. And the number of people looking for a digital store of value in an environment of rising interest rates may be limited.
Bitcoin faces a tough year
I don’t think Bitcoin will reach $30,000 this year and the risk that it could fall further is definitely there. Investors are switching into productive assets like dividend stocks and bonds and out of risky assets like bitcoin. If 2022 has taught us anything, it’s that Bitcoin’s value is tied to speculation more than anything else, and with no utility on the blockchain like payments or smart contracts, I think this cryptocurrency will eventually be overshadowed by more innovative competitors.
Travis Hoium has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.
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