Between the beginning of January and the end of June, Bitcoin increased by 84%, rising beyond $30,000 to record its best first-half year since 2019, when it debuted below $3,500.Despite the highest first-half performance in four decades for the tech-heavy Nasdaq, the index most correlated with tokens, the largest digital asset, still beat stocks. It’s a remarkable comeback story for Bitcoin and other cryptocurrencies, many of which have experienced a similar ascent.
The crypto market suffered a setback at the end of 2022 when the crypto exchange FTX went under fraud claims, shaking prices and driving Bitcoin to multiyear lows. This came after months of a harsh bear market following the collapse of Terra Luna. Since that low point, the largest digital asset has more than doubled, evading regulatory attention as it benefited from an improving macroeconomic environment and cautious new institutional investment in the sector. Investors are also expecting higher gains when the second half of 2023 begins.
Why has Bitcoin rallied?
The Federal Reserve is partly to blame for crypto. The Fed’s interest rate hikes were a major headwind in 2022. The highest rates in a decade put a lot of pressure on risky assets like coins and tech stocks. Things are different in 2023 when there are signs that inflation is slowing down and that the central bank is almost done with its job. Bitcoin has become less tied to stock prices, but it still moves based on what Fed officials say and on inflation and job figures.
However, the most significant driver of Bitcoin’s gains in 2023 will likely be tentative but significant institutional interest in cryptocurrencies. This trend has been touted for years as essential to a sustained price increase. BlackRock (ticker: BLK), Fidelity, and a number of other pillars of conventional finance filed for spot Bitcoin exchange-traded funds (ETFs) at the end of June. It could generate a new tide of consumer interest and pave the way for increased institutional adoption if approved.
According to Clara Medalie, head of research at cryptocurrency data firm Kaiko, “This is the single most bullish catalyst for crypto markets since the FTX collapse because it suggests that institutional interest still exists.”
The next crypto catalysts
Whether the Securities and Exchange Commission allows Bitcoin ETFs—a decision might be made as early as next month—this is expected to be the next significant driver for the cryptocurrency markets. Crypto traders remain upbeat despite a recent article from The Wall Street Journal that claimed the government has discovered problems with applications.
According to Kate Laurence, co-founder and general partner at Bloccelerate, a startup fund with a Web3 focus, “Institutional adoption of crypto—specifically Bitcoin—will be a big theme” in 2023. The regulatory crackdown’s one benefit, if there is one, is that it has made it plain that Bitcoin is not a security.
In fact, Bitcoin has escaped the regulatory pressures that have affected the rest of the market, as the SEC has labeled numerous smaller cryptocurrencies as unregulated securities and singled out the exchanges Coinbase Global (COIN) and Binance. Regulators have, nevertheless, come to an unofficial agreement that Bitcoin is a commodity.
Since a decision in a dispute between token issuer Ripple and the SEC is expected soon, market participants are anxious to know the legal status of cryptocurrencies in the United States. Bitcoin has generally managed to float above these concerns. The outcome of the lawsuit filed by the government against Ripple in 2020 for selling unregistered securities will be crucial.
Laurence asserts that this will demonstrate in one way or another what result we may anticipate from the remaining lawsuits.
The global acceptance of digital assets is another issue, which American-based investors frequently overlook. The decentralized digital token has been praised for years by Bitcoin “maximalists” as a replacement for unstable fiat money, and this idea still forms the basis of many crypto schemes.
Predictions for H2 of 2023
Investors have praised the significant gains made so far this year. However, the health of the crypto markets is still in question due to historically low trading volumes and liquidity, which are a legacy of the FTX collapse, which turned off traders.
According to some crypto analyst, “Crypto markets have suffered greatly in 2023, with falling volumes and a drop in global liquidity. However, over the coming months, as markets settle, we could observe a wider turnaround.”
Making forecasts about the future price of cryptocurrencies can be challenging because there aren’t many fundamentals that can be tied to cryptocurrencies like Bitcoin other than their issuance schedule, which determines their scarcity. It turns out that none of the models that Morningstar’s analysts tried to use to determine Bitcoin’s “fair value” perform particularly well.
According to another market analyst, “Bitcoin is still a little bit of a mirror: People will see what they want to see.” Although the analyst claims he’s eyeing $40,000 as a price target for Bitcoin, he acknowledges that “the market has very little control over the direction of Bitcoin’s price at this time.”
However, it’s obvious that the overwhelming consensus among market participants is that cryptos are expected to keep rising, supported by the momentum from such a strong start to the year.
In a year, another market analyst predicts, “We think the balance of probabilities is much more weighted to the upside than the downside.” According to the analyst, if we weren’t at least at higher levels than we are now or possibly on the verge of reaching all-time highs by this time next year, it would be a very uncommon market cycle.
Another believes that Bitcoin will likely stagnate as it approaches the $35,000 mark this month, but predicts that “Bitcoin will hit a new record high in 2024.” There is still a full six months until that 2024 prediction might come true, but if there is one lesson that investors can learn from the first half of 2023, it is that there is never a quiet moment in the world of crypto.
