Heading into 2023, the crypto markets remain as volatile as ever. Opinions remain mixed on the future path of the industry, and high-profile names within the crypto world have been rushing to put out a wide range of predictions for the year ahead.
But despite all this uncertainty and volatility, one thing remains the same: It is impossible to make a prediction for the crypto market without taking into account Bitcoin (BTC 1.26%).
For that reason, I'm making Bitcoin my top cryptocurrency to buy in December. At a time when nearly all the top 100 cryptocurrencies are in the red for the year, I feel most comfortable about Bitcoin breaking away from the pack and leading the next crypto bull market rally. Here are three reasons why.
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1. The flight to quality
In the aftermath of the collapse of crypto exchange FTX, both retail and institutional investors are moving their money into the least risky assets possible. If these investors are keeping their funds in the crypto asset class, that typically means a move to Bitcoin, which now accounts for nearly 40% of the entire capitalization of the crypto market. While all cryptocurrencies are inherently volatile and risky, Bitcoin is arguably the least risky of all the major cryptocurrencies.
2. A long track record of bear market recoveries
Moreover, Bitcoin has a long track record of bouncing back from previous market meltdowns. Since its creation back in 2009, Bitcoin has made it through at least five different bear market cycles, all of them as stomach-churning and dizzying as the current market cycle. The bear market collapse in 2011 was particularly stomach-churning: In a matter of days, Bitcoin fell from $32 to $0.01, and many investors thought Bitcoin would never recover.
Other newer cryptos don't have this long-term track record. While past performance is no guarantee of future performance, there is a high likelihood that if the crypto market ever rebounds, Bitcoin will be there to lead the way.
3. The next big catalyst
Finally, Bitcoin has a clear catalyst coming that could lead the market higher in 2023. Known as the halving, this is the event that occurs every four years, like clockwork, due to the algorithmic nature of Bitcoin.
In a halving event, the reward for Bitcoin miners who successfully mine a new Bitcoin block is cut in half. The net impact of this is that Bitcoin's supply growth slows over time. At the same time, Bitcoin also becomes more valuable in the eyes of potential buyers due to its perceived scarcity.
The best part about the halving is that we know exactly when it will occur (March 2024), and we also have a history of how Bitcoin has performed in the past after similar halving events in 2012, 2016, and 2020. The general pattern with these halvings is the following: Bitcoin reaches a bottom about 15 months ahead of the next halving, gradually increases in price for the next 15 months, and then pops as soon as the halving takes place.
Based on this past history, some sophisticated hedge funds have put together models showing what could happen to Bitcoin in 2023 and 2024. The next halving will take place about 15 months from now, so it is likely that Bitcoin has already found its bottom and is ready for a gradual recovery headed into early 2024.
Based on this model, California-based crypto hedge fund Pantera Capital suggests that Bitcoin could rise to as high as $36,000 before 2024 before really taking off and rallying to $149,000 in the wake of the halving.
Risk and reward
From my perspective, Bitcoin really captures the best of both worlds when it comes to the risk-reward relationship. It has arguably the lowest risk profile of the major cryptocurrencies, and it also has a fantastically high upside potential. Moreover, Bitcoin has a clear catalyst in place, as well as a strong track record of recovering from previous market crashes.
Again, past performance is no guarantee of future performance. As many crypto traders love to point out, Bitcoin could just as easily lose half its value as double in price.
As for me, I think the latter scenario is more likely. When you think about the overall risk-reward relationship for Bitcoin, it's hard not to be bullish about its long-term fortunes. The time to buy is now in December, so that you can participate in as much of the coming upside potential as possible.
