Bitcoin (BTC), along with the rest of the digital asset market, has had a rough ride throughout 2022. The cryptocurrency started the year trading around $46,700 and is currently trading at $16,560, down more than 64% at the time of writing. As a result, the coin’s market capitalization dropped from around $900 billion on January 1, 2022, ending the year at around $320 billion.
Although the fall in the price of Bitcoin can be attributed to the extraordinary circumstances that the entire cryptocurrency market experienced during this year, it is important to re-evaluate the price predictions for 2022 made by various market actors. One of the most popular predictions was analyst PlanB’s Bitcoin Stock-to-Flow (S2F) model.
The S2F model predicted BTC to be around $110,000 by December 2022. The cryptocurrency ended the year almost 85% below target, raising questions about the validity of the pricing model. Stock-to-flow models are commonly used to price commodities in traditional markets because they consider two variables associated with an asset: stock and flow. “Stock” refers to the total existing supply of an asset and “flow” refers to the new supply of an asset created each year.
Antony Trenchev, co-founder and managing partner of Nexo, a digital asset management platform, shared his thoughts on the reliability of the S2F forecasting model with Cointelegraph:
“There are many factors that can affect the price of Bitcoin, including market demand, regulatory changes and technological developments. The S2F model is one of the tools that can be used to make predictions about the future price of Bitcoin, but it should be noted that it is based on certain assumptions and is not a definitive guide to the future.”
Besides S2F, other models have been used to try to predict the price of Bitcoin in the near and distant future. Two popular ones are the Elliott Wave Theory and the Hyperwave Theory. Although both have their roots in traditional financial markets, their success in predicting BTC’s price has also been relatively limited.
Price models fail like a new year for Bitcoin
Given that Bitcoin only began its journey as an asset over a decade ago, it’s safe to say that cryptocurrency is still in the nascent stages of price discovery compared to commodities like gold or silver and other leading technology stocks like Apple and Microsoft. . So, while there are various BTC price predictions, it is important to remember the limited availability of periodic data to consider these models.
Trenchev added that there are many different models and approaches that can be used to try to predict the price of bitcoin. Some people use technical analysis, which involves studying historical price and volume data to identify patterns and trends. Others use fundamental analysis, which involves evaluating the underlying factors that may affect the supply and demand of an asset. No single model or approach to predicting the price of Bitcoin is universally considered the most reliable, and it is important to consider a number of factors when making any investment decision.
Related: The Three Most Controversial Bitcoin Price Models and What They Predict
Alex McCurry, CEO and co-founder of blockchain solutions provider Solidity.io, agrees with Trenchev to Cointelegraph: “Bitcoin is a completely unpredictable asset. The only thing you can be sure of when it comes to Bitcoin is the fundamental underlying value of the Bitcoin network and the value it provides to owners and investors. Therefore, long-term acceptance and value in the macroeconomic environment can be predicted over time, but the exact price cannot be perfectly determined.
However, one important aspect could change Bitcoin’s price trends: utility.
Since Bitcoin is not a smart contract compliant network, the utility of the asset is limited to the payment line. This is slowly starting to change, with Bitcoin now benefiting more than ever, powered by the Lightning Network.
LN is a layer 2 payment protocol built on top of the Bitcoin network that enables fast, seamless peer-to-peer transactions. This helps to significantly improve the scalability of the network. Michael Saylor’s MicroStrategy recently announced plans to release software and solutions powered by the Lightning Network in 2023.
MicroStrategy also continues to add Bitcoin to its coffers. From November 1 to December 21, 2022, the company acquired 2,395 BTC for an average of $17,181 and a total of $42.8 million. For tax reasons, he sold 704 BTC at $16,776 per coin on December 22 for a total of $11.8 million. As a buyback, the company bought 810 BTC on December 24 for $13.6 million in cash. According to data from BitcoinTreasures, this shows the firm has 132,500 BTC, which is worth about $2.2 billion at the time of writing.
Global investment manager VanEck has released 11 cryptocurrency predictions for 2023, among which he claims that BTC will fall to $10,000-12,000 per quarter “amid a wave of miner bankruptcies” and will fall back to $30,000 in the second half of 2023.
McCurry agreed with this prediction, saying, “I believe Bitcoin will bounce back in 2023, and I feel that by 2024, Bitcoin will reach a new high significantly above the $69,000 peak in 2021.”
Trenchev added: “It is possible that the price of Bitcoin will rise to $30,000 in the second half of 2023, but it should also be taken into account that the price of Bitcoin is very volatile and can be affected by many factors. .”
Derivatives market and BTC price discovery
Despite the unpredictable, volatile nature of Bitcoin’s price, the asset’s derivatives market is an important indicator of its current and future sentiment.
According to data from Coinglass, the Bitcoin futures market currently has an open interest (OI) of more than $9 billion. At the same time, the open interest of the Bitcoin options market is $3.4 billion, which is more than 76% of the OI on the Deribit cryptocurrency derivatives exchange.
Luuk Strijers, Chief Commercial Officer of Deribit, spoke to Cointelegraph about how options data for 2023 reveals the market’s price sentiment for Bitcoin. He said:
“The total sales ratio for June 2023 is 0.24, which is quite low. This usually implies bullish sentiment, as there are three times more calls pending than puts. The maximum pain point is $19,000, indicating upside potential. Investors take positions at larger strikes ($20,000, $25,000 and $30,000). The premium for higher strikes is obviously lower, so these can be seen as top bets or used by the calling sellers to generate income.
The maximum pain price is the price point at which the most options are lost. Strijers added, “Since the FTX implosion, investors have been on the sidelines, waiting for industry news as well as macroeconomic news. We have experienced new lows in implied volatilities and the short term is currently trading in the 30s. We even see dailies trading below 30%. At the same time, the current liquidity is below the norm.”
Market uncertainty aside, regulations coming in 2023—namely the European Union’s Crypto Asset Markets bill and the US Lummis-Gillibrand and Warren-Marshall bills—could bring stability to the market as investors who feel the space is more secured investors will feel more confident in control.
This article does not contain investment advice or recommendations. Every investment and trading action involves risk and readers should do their own research before making a decision.