After Bitcoin's (BTC 0.26%) dismal performance in 2022, the recent bounce in price makes it look like the worst might be over. While Bitcoin's recent gains sure feel good after a brutal 2022 that caused its price to sink more than 70%, these are just short-term movements in its price ascension.
It can be difficult to not get caught up in price swings, but investors who can maintain a long-term outlook -- and avoid impulsive decisions -- are better suited for success with Bitcoin.
If you feel like you might be struggling to keep the big picture in focus, there is one chart that usually helps me avoid the hysteria of people paying too much attention to Bitcoin's price movements.
Time to zoom out
Below is a chart of Bitcoin's price, in the form of yearly candlesticks on a logarithmic scale, which is useful here because it is better at displaying data that cover a large range of oscillating values.
This makes it perfect for displaying Bitcoin's historical price, which has gone from just a few cents per token to more than $60,000. The day-to-day fluctuations are all but gone in this perspective. By zooming out, one pattern becomes abundantly clear: Bitcoin rewards the long-term investor.
There are down years where the candles are red, but they are only small setbacks in Bitcoin's climb. For a bit of optimism, notice that Bitcoin has never posted two consecutive negative years.
A truly limited supply
If past trends continue, Bitcoin looks increasingly likely to climb. And it boils down to one simple but powerful dynamic: supply and demand.
One of Bitcoin's most important characteristics is its limited supply. Its code ensures that there will only ever be 21 million bitcoins in circulation. There are currently about 19.25 million circulating, and the remaining 1.75 million will become available at a decreasing rate until the year 2140, when the last bitcoin will be mined.
Because the rate at which its new tokens enter circulation dwindles every four years, Bitcoin is considered a deflationary asset. Unlike the U.S. dollar and just about every other fiat currency, Bitcoin investors should benefit from an increase in purchasing power with time.
Its limited supply and characteristics of a deflationary asset are two of the primary reasons that the world's first cryptocurrency has gone from being worth less than a few pennies to -- at one point -- hitting an all-time high of almost $69,000. Even better, though, demand for Bitcoin seems only to be increasing.
What the numbers show
There is a lot of data to back up this notion, including some that suggest the most recent crypto winter might be thawing. To start, the number of wallets with a positive balance recently hit an all-time high of more than 45 million.
And the number of transactions and the rate at which new addresses have been joining the network are both at levels not seen since Bitcoin was well within bull market territory in mid-2021.
While this recent data is encouraging in the near term, Bitcoin has had plenty of accomplishments in the last few years that can't be measured by any specific chart. In its journey to becoming a more legitimate asset, it is now recognized by two countries as legal tender, multiple Fortune 500 companies now hold it on their balance sheets, and it has even garnered attention from the world's largest asset manager, BlackRock. Should trends like these continue, it could lead to even more demand from investors.
For these reasons, I foresee Bitcoin's price continuing to rise. Macroeconomic factors, trends in the private sector, and patterns from retail investors suggest demand will outpace supply. And when an asset is subject to this phenomenon, it usually means great things for investors.
