3 Reasons Why 2023 Could Be a Big Year for Bitcoin

After returning 59% in 2020 and 60% in 2021, a 67% year-to-date decline was clearly not that type of performance. Bitcoin (BTC -6.95%) investors expected in 2022.

But as legendary investor Peter Lynch once said, “The key to making money in stocks is not to be afraid of them.” While Lynch was talking about the stock market before crypto, his advice is just as smart for crypto investors today. Many investors have sold their crypto holdings, including Bitcoin, during the current crypto winter, but for every seller there is a buyer, and their Bitcoin has been bought by long-term investors who believe in Bitcoin’s future.

Rising interest rates and the end of monetary easing are the main culprits behind Bitcoin’s pullback. However, based on a number of recent developments, the future looks more like 2021 than 2022 for Bitcoin. Here are three reasons why the year ahead looks even better for the top digital asset.

Image source: Getty Images.

1. Institutions are coming…

Primarily, more institutional investors are investing in Bitcoin because they see cryptocurrencies as a legitimate asset class, with Bitcoin being the largest ($300 billion market cap) and the most accessible.

According to the annual Fidelity Digital Assets survey conducted by the management of financial giant Fidelity, 58% of the institutional investors surveyed bought cryptocurrencies in the first half of 2022. In addition, 74% of respondents said they plan to invest in cryptocurrency in the future. . This was no small sample size either, as Fidelity surveyed 1,052 institutional money managers across North America, Europe and Asia. These institutional investors have more buying power than the average retail investor, and their increased presence in the market could theoretically drive up the price of Bitcoin.

Demonstrating the growing demand of large investors, Bank of New York Mellon (BK -1.41%)The oldest bank in the United States and the largest custodial bank in the world has announced that it will begin offering custody services for Bitcoin due to high demand from customers. BlackRock (BLK -2.44%)the world’s largest asset manager said it would work with cryptocurrency Coinbase (COIN -9.54%) Offering the Aladdin trading platform to customers holding Bitcoin on Coinbase.

2. …So are blue chip companies

At the same time, Bitcoin use is heating up among large technology companies and financial firms. For years, critics of Bitcoin have tried to nullify its value as an investment by saying that it lacks many use cases.

This is starting to change, and fast. Google parent Alphabet (GOOG -1.70%) (GOOGL -1.78%) It recently said it will allow customers to pay for Google Cloud using Bitcoin and several other cryptocurrencies MasterCard (MA -3.10%) announced plans to work with crypto firm Paxos to help traditional banks offer cryptocurrency trading and investment platforms.

3. The Fed’s easing of interest rate hikes could boost Bitcoin

The Federal Reserve has begun aggressively raising interest rates in 2022 to fight inflation, and the results are yet to be determined. One thing the interest rate hikes did do was crash many speculative, long-dated assets like Bitcoin and tech stocks. After raising the key rate from 0.25% to 0.5% in March, with a series of sharp hikes to 3.75-4%, many market watchers think the Fed will finally have to slow those rate hikes at some point in the near future. . If the Fed eases off the gas and allows rates to stabilize, that should make investors feel more comfortable returning to assets like Bitcoin.

Slide where the puck is going

At the end of the day, 2022 has been a painful year for Bitcoin investors. However, as an early-stage asset class that is still largely a speculative investment, its value has held higher than expected given the turmoil in traditional financial markets. Looking ahead, 2023 will be a big year for Bitcoin. At the very least, it should be much better than 2022, thanks to increased investment by large institutional investors, increased use by global technology and financial firms, and a more accommodative monetary environment from the Fed. Bitcoin is still a risky investment, but I think all investors can benefit from a small allocation to Bitcoin in their portfolio.

Alphabet CEO Suzanne Frey is a member of The Motley Fool’s board of directors. Michael Byrne holds positions in Bitcoin. The Motley Fool Alphabet (A shares), Alphabet (C shares), Bitcoin, Coinbase Global, Inc. and has positions in and recommends Mastercard. The Motley Fool has a disclosure policy.

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