Bitcoin
rose 84% between the start of January and end of June. It rose above $30,000 – its best first six months since 2019, when it began the year below $3,500. The largest digital asset trounced stocks, even beating the tech-heavy Nasdaq—the index most correlated with tokens—which saw its best first-half in four decades. It’s a remarkable comeback story for Bitcoin and other cryptocurrencies, many of which had a similar rally.
After months of a brutal bear market, the industry was dealt a blow at the end of 2022 when the crypto exchange FTX went bust amid allegations of fraud, rocking prices and sending Bitcoin to multiyear lows. The largest digital asset has since more than doubled from that trough, brushing aside regulatory scrutiny as it was buoyed by an improving macroeconomic environment and tentative new institutional participation in the space. And, as the second half of 2023 gets under way, investors are calling for more gains.
“Confidence has returned to the market,” says Michael Safai, managing partner at crypto trading firm Dexterity Capital. “Growth is returning at a more sustainable pace.”
Why Has Bitcoin Rallied?
In part, crypto can thank the Federal Reserve. The Fed’s interest-rate hikes were a key headwind in 2022—with the highest rates in a generation weighing heavily on risk-sensitive assets from tokens to tech stocks. It’s a different story in 2023 which has seen signs that inflation is cooling and that the central bank’s work is nearly done. Bitcoin has become less correlated with equities, but continues to move on the back of remarks from Fed officials as well as inflation and jobs data.
However, the most substantial driver of Bitcoin’s 2023 gains is likely tentative but significant new institutional interest in crypto, a trend that has long been heralded as critical to a sustainable rise in prices. Bitcoin’s latest leg up came in late June, when
BlackRock
(ticker: BLK), Fidelity, and a number of other stalwarts of traditional finance filed for spot Bitcoin exchange-traded funds (ETFs). If approved, it could usher in both a fresh wave of retail interest as well as pave the way for more institutional adoption.
“This is the single most bullish catalyst for crypto markets since the FTX collapse because it suggests that institutional interest still exists,” says Clara Medalie, head of research at crypto data provider Kaiko.
The Next Catalysts for Cryptos
Whether or not the Securities and Exchange Commission approves Bitcoin ETFs, a decision may happen as soon as next month, this is likely to be the next major catalyst for crypto markets. While a recent report from The Wall Street Journal suggested the agency has found issues with applications, crypto traders remain optimistic.
“Institutional adoption of crypto—specifically Bitcoin—will be a big theme” in 2023, says Kate Laurence, co-founder and general partner at Bloccelerate, a Web3-focused venture fund. “If there is one silver lining that came from the regulatory crackdown is that Bitcoin has been clearly established as not a security.”
Indeed, Bitcoin has managed to dodge the regulatory pressures that have hit the rest of the industry, with the SEC calling many smaller cryptocurrencies unregulated securities and targeting exchanges
Coinbase Global
(COIN) and Binance. Meanwhile, there has been unofficial consensus among regulators that Bitcoin is a commodity.
Bitcoin has largely floated above these worries, but market participants want clarity over the legal status of crypto in the U.S., with the focus falling on a coming judgment in a case between token issuer Ripple and the SEC. The agency sued Ripple in 2020 for offering unregistered securities, and the outcome of that case will be key.
“One way or another, this will give us an indication of what outcome we can expect from the rest of the lawsuits,” says Laurence.
There’s also the matter of global adoption of digital assets, a trend that can often escape the attention of U.S.-based investors. Bitcoin “maximalists” have long touted the decentralized digital token as an alternative of unstable fiat currencies, and that thesis remains at the core of many crypto strategies.
“We’re constantly on the lookout for South American nations and other regions that are seeing currency crises which are getting really extreme,” says Stéphane Ouellette, CEO of crypto advisor
FRNT Financial,
noting that there is often an intermediate step into dollar-pegged stablecoins before wider Bitcoin usage. “Those are really the kind of the metrics that we look for to underscore adoption,” he adds.
Predictions for the Second Half of 2023
Investors have celebrated the large gains so far this year, but there continue to be issues with the health of crypto markets, including historically low trading volumes and liquidity—a hangover from the collapse of FTX, which pushed traders away.
“Crypto markets have suffered heavily in 2023, with falling volumes and a drop in global liquidity, but over the next few months as markets settle, we could observe a broader turnaround,” says Medalie.
As for where Bitcoin is going next, part of the problem of making crypto price predictions is that there are few fundamentals to tie back to the likes of Bitcoin, other than its issuance schedule, which dictates its scarcity. Analysts at Morningstar attempted to apply a number of models to try to find Bitcoin’s “fair value”—and it turns out none of them work terribly well.
“Bitcoin is still a bit of a mirror: People will see what they want to see,” wrote analyst Madeline Hume.
While Safai says he’s eyeing $40,000 as a price target for Bitcoin if regulatory approvals stir up enough new zeal among traders, he admits that “the market has very little control over the direction of Bitcoin’s price at this time.”
Nevertheless, it’s clear that the overwhelming sentiment among market participants is that cryptos are likely to keep going up, helped by the momentum from such a good start to the year.
“In a year’s time, we think the balance of probabilities is much more weighted to the upside than the downside,’ says Ouellette. “It would be a very unusual market cycle if, by this time next year, we weren’t kind of in a position of at least at higher levels than we are today or potentially threatening all time highs.”
Laurence, for her part, sees Bitcoin edging toward $35,000 this month, where it risks stagnating—but “Bitcoin will hit a new record high in 2024,” she says. There’s a full six months before that 2024 prediction may take shape—and if there’s one takeaway for investors from the first half of 2023, it’s that there’s never a dull moment in crypto.
Write to Jack Denton at [email protected]
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