For the first two months of 2023, Bitcoin (BTC 0.25%) has been on a remarkable run. It's now up 41.45% for the year, and trades at just over $23,479. But there are signs that Bitcoin is running out of momentum as it tests the $25,000 mark.
While Bitcoin briefly touched the $25,000 level in mid-February, it quickly gave up those gains. And the last time Bitcoin flirted with the $25,000 level back in August 2022, it eventually sank below the $18,000 mark. As a result, the consensus now is that $25,000 is a very important price level for Bitcoin. So can Bitcoin break through the $25,000 level or not?
Short-term outlook
If you are only taking a short-term outlook, of course, things look particularly dicey for Bitcoin. Everybody is watching the Federal Reserve right now for signs of further monetary tightening. If the Federal Reserve continues to raise rates in order to tame inflation, the thinking goes, then Bitcoin is going to have a tough time breaking through the $25,000 level. At some point, the Fed might trigger a recession, and that's not going to help Bitcoin at all.
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Moreover, the price of Bitcoin is now increasingly correlated with the performance of big tech stocks. Over the past 90 days, the correlation of Bitcoin with the tech-heavy Nasdaq is 0.75. This suggests that, while crypto is not marching in lock-step with big tech companies, it is marching at about the same tempo. If you've been following all the layoffs happening in Silicon Valley recently, this is not good news for crypto. It suggests that a real rebound in Bitcoin won't happen until the tech industry fully recovers.
Long-term outlook
However, if you take a long-term perspective, the outlook for Bitcoin brightens significantly. The case for Bitcoin global adoption is hard to deny. Just about every head-spinning price prediction made for Bitcoin -- such as Bitcoin at $500,000 or Bitcoin at $1 million -- is based on some scenario in which Bitcoin becomes relatively ubiquitous on a worldwide level.
CRYPTO: BTC
Key Data Points
When Cathie Wood and Ark Invest came up with a revised $1.48 million price target for Bitcoin this year, it was based on the assumption that Bitcoin would see tremendous growth in eight key areas. For example, in emerging markets, Bitcoin will eventually represent a greater and greater share of the M2 money supply, a common measure of the money supply. Amongst institutional investors, Bitcoin will account for a larger and larger share of total portfolio holdings. At the same time, Bitcoin will increasingly be held on corporate balance sheets, used for cross-border remittances, and held as a form of "digital gold."
But that's just part of the global adoption story for Bitcoin. As Silicon Valley venture capitalist Tim Draper pointed out in his $250,000 price prediction, Bitcoin will become more and more ubiquitous as a form of payment. Just about anything you buy online will be paid via Bitcoin, predicts Draper. While this scenario might take quite a bit of time to play out, the fact remains that more than one-half of adult Americans now own crypto or have owned it in the past.
And, finally, new use cases for Bitcoin continue to emerge. With each new use case, the valuation of Bitcoin will only continue to increase. The one use case that has everyone buzzing now is the ability to store non-fungible tokens (NFTs) on the Bitcoin blockchain. These NFTs, known as Ordinals, may only be a passing fad -- or they could be part of a new era for Bitcoin, in which its blockchain is eventually used for much more than just financial transaction processing.
Should you buy Bitcoin?
Ultimately, the choice of whether to buy Bitcoin comes down to how you view the market. If you only take a short-term view of the market, then Bitcoin may not look like an attractive buy right now. Why take on all the risk, volatility, and uncertainty of crypto when you can just buy a big tech stock in the Nasdaq?
However, if you are taking a long-term view of the market, then Bitcoin below $25,000 looks like a screaming buy. The future growth prospects of Bitcoin just look too good to ignore. While the price of Bitcoin might never reach the $1 million mark, it's hard to see how Bitcoin won't again make a run at its all-time high of $68,789.63. At today's prices, that would represent a nearly 200% return on your investment.
