Bitcoin's (BTC +0.54%) fortunes turned south in 2022 as the token's value fell 64% and both investors and traders began to question the cryptocurrency's future. Bitcoin failed to be a hedge against inflation while falling behind upgraded blockchains like Ethereum (ETH +0.28%) and Solana (SOL 0.34%) when it comes to utility.
As the calendar turns to 2023, will Bitcoin gain traction and get back to $30,000, or is the bull run over? Here's what you need to consider this year.
CRYPTO: BTC
Key Data Points
The digital store of value is Bitcoin's best bull case
Bitcoin has long been touted as a revolutionary new form of money, with its decentralized network and cryptographic security measures making it a safe and potentially disruptive force in the world of finance. However, as the years have gone on, it has become increasingly clear that Bitcoin's true strength lies not in its use as a medium of exchange or payment system, but rather as a store of value.
Security and decentralization of the network are arguably Bitcoin's biggest strengths, and for those looking to park money to maintain value, it's a decent option. But that may not be enough in 2023, especially as risk and leverage in major crypto players come to light.
Liquidation risk is very real
While Bitcoin's use as a store of value may seem like a positive, it is not without its risks. One major concern is big holders being forced to sell. Michael Saylor's company, MicroStrategy (MSTR +4.31%), holds 132,500 bitcoins as of Dec. 27, at an average purchase price of $30,397 per token. MicroStrategy also has $2.4 billion in debt, and its operations can't support that. If Bitcoin falls further, there's a very real risk MicroStrategy would need to liquidate its tokens.
Digital Currency Group is another concern with its Grayscale Bitcoin Trust (GBTC +0.05%) now trading well below the net asset value of its Bitcoin holdings, meaning there's additional liquidation risk. At the time of writing, the GBTC is trading at a 45% discount to its net asset value, a gap that has persisted for some time.
GBTC Discount or Premium to NAV data by YCharts
GBTC has attempted to change its structure to allow more liquid trading and potentially redemption of the trust's assets, which could mean selling Bitcoin. This discount could lead to mass liquidation and a flood of selling in the market, undermining confidence in Bitcoin's value.
The lack of Bitcoin payments is a problem
Despite its hype and the attention it has received over the years, Bitcoin has yet to gain widespread adoption as a payments system. This is in contrast to other cryptocurrencies like Ethereum and Solana, which have more robust payment ecosystems and native smart contract capabilities.
Without a strong foundation as a payments system, it is difficult to see how Bitcoin can maintain its status as a leading cryptocurrency outside of those who simply want to store value. And the number of people looking for a digital store of value in a rising interest rate environment may be limited.
Bitcoin is in for a rough year
I don't think Bitcoin will hit $30,000 this year, and the risk it may fall further definitely exists. Investors are moving to productive assets, like dividend stocks and bonds, and out of risk assets like Bitcoin. If we learned anything in 2022, it's that Bitcoin's value is tied to speculation more than anything, and without utility on the blockchain such as payments or smart contracts, I think this cryptocurrency will eventually be overshadowed by more innovative competitors.
