The king of crypto, bitcoin, has had a poor year after reaching a record high in November of last year with its price is down more than 70%. Due to a number of bitcoin frauds this year, confidence in BTC was rattled, and investors are now more cautious in their approach. Will 2023 witness another record high for Bitcoin, or will the price will plummet even further?
The prominent fall of cryptocurrency assets and exchanges like Luna, FTX, and Celsius had a negative impact on the industry this year. Prior to their collapse, the market’s mood was much more upbeat since investors were excited about larger institutions beginning to sell cryptocurrency to their customers. However, these recent collapses have raised doubts about the lack of oversight by regulators, and as a result, the mood in the crypto world isn’t all that favorable right now. Despite this, there are still reports circulating that suggest financial institutions like Goldman Sachs are approaching their involvement in cryptocurrencies with a more aggressive stance even as crypto companies have reached more desirable levels in terms of their valuations.
Going into 2023, I think there are greater chances of a crypto rally happening than there is of ongoing turbulence. The value I described earlier is one reason why; the risk-to-reward ratio and valuations are typically the two factors that Wall Street and smart money focus on. And on the risk-to-reward side of things, the scandals that occurred this year will lead to increased scrutiny, which could help to reduce that risk. After all, the co-founder of FTX has been detained, and a number of allegations have been brought against him. This demonstrates how determined regulators are to send a message to any bad actors in the space, and under these circumstances, we should see a greater sense of confidence among traditional players going in 2023.
Another factor that increases my optimism for BTC is the likelihood that the U.S. Federal Reserve may change its position on monetary policy to one that is less hawkish. The price of Bitcoin was significantly depressed by the sharp increases in the dollar index; now that the Fed is sufficiently close to reaching the apex of its interest rate cycle, the dollar index is now trading close to its six-month low. More dollar index deterioration is projected to occur in 2023 as the recent U.S. CPI inflation data suggests, which might help the price of bitcoin.
Leveraged bets are a significant component that often affects the price of any asset. Bitcoin miners are significant actors in this market since they staked a lot of money by using their BTC to pay for their mining equipment. They had to sell their BTCs due to the recent volatility in order to pay for their equipment. The number of bitcoins kept in miners’ wallets decreased by 7,722 since last month, according to CryptoQuant’s miner statistics. This suggests that there are now fewer bitcoins that can be sold, which typically drives the price down.
But heading into 2023, there are two crucial factors that traders need to pay close attention to. One concerns Binance, the largest cryptocurrency exchange: A significant capital exodus from Binance has already come under regulatory scrutiny. Binance claims to have enormous reserves totaling $60 billion; however, a significant portion of that figure is predicated on the value of its own cryptocurrency, BNB. We could see another significant collapse in the cryptocurrency market if confidence starts to wane and money starts to flow out more rapidly.
Lastly, as Grayscale Bitcoin Trust is the biggest bitcoin fund in the world with $10.9 billion in assets, traders need to closely monitor any new developments in this area. The parent firm is exposed to Genesis Trading, which owes $575 million to Genesis’s cryptocurrency loan business. These are figures that are disseminated in the public, notwithstanding the little amount of exposure in this case. We discovered regarding the FTX disaster that things are much different on the inside than what is reported in the media.
In conclusion, the future of bitcoin is bright if we do not witness another major collapse, and if authorities continue to catch fraudsters and prevent them from taking advantage of investors. The losses Bitcoin has seen in 2022 are nothing new, and the cryptocurrency sector has always rebounded even stronger after each setback. This time could be no different.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.