The price of Bitcoin (BTC 0.58%) has surged 455% higher over the past three years as investors have grown increasingly optimistic about the world's leading crypto. Part of the excitement has stemmed from the launch of spot Bitcoin exchange-traded funds (ETFs) last year, making it easier than ever for investors to add some exposure to Bitcoin in their portfolios.
However, another driver of Bitcoin's value has likely been investors' overly optimistic expectations. They've been driven, in part, by a positive sentiment in the broader market thanks to artificial intelligence (AI). That sentiment has shifted, at least temporarily, and the value of Bitcoin and other cryptos has dropped recently.
Where is Bitcoin headed? Here are a few factors that could hinder cryptocurrency price growth over the next 12 months.
Image source: Getty Images.
1. Investors may continue backing away from riskier investments
Investors have had a significant appetite for risk over the past few years as new artificial intelligence technologies emerged. That pushed the valuations of many tech stocks to eye-watering levels and helped contribute to an overall sentiment among investors that risky investing is the norm.
That likely helped Bitcoin's value rise when Bitcoin ETFs debuted last year, making owning a piece of Bitcoin easier than ever. However, some of those investors appear to be losing their appetite for risk or taking some of their gains from the past few years, as Bitcoin has declined by about 20% over the past three months.
Bitcoin's price has always been volatile, and it's not a sure thing that it will continue to fall or that it won't bounce back shortly. But with some AI stocks dipping recently as well, sentiment could be shifting among investors, which could push Bitcoin's value down further.
2. Economic data could weigh Bitcoin down
There are increasing indications that the economy may be slowing down, which could push Bitcoin's price lower if more negative news emerges.
For one, recent jobs data has been troubling. A slew of layoffs in October resulted in the worst job losses during that month in more than 20 years. Year to date, companies have announced 1.1 million job cuts, the most over this period since 2020. It's still unclear whether this is a temporary pullback on hiring or something more permanent.
None of this means the economy is on a recession path right now, but we've already seen Bitcoin investors begin selling off their positions in response to even a little bad economic news. If more is on the way over the next year, or if unemployment starts rising, Bitcoin's value will likely start tumbling.
CRYPTO: BTC
Key Data Points
3. A lack of interest rate cuts could send Bitcoin lower
Another reason some Bitcoin investors have become more pessimistic lately is that they believe the chances of the Federal Reserve cutting interest rates are not high. Barron's recently reported that in October, about 65% of investors were expecting a rate cut in December. That has dropped to just 46% now.
When interest rates are lower, investors are usually more willing to invest in riskier assets, such as Bitcoin, because borrowing money is cheaper, and lower rates can help spur economic spending. The Fed could still cut rates in December, of course, and it could do so several times in the coming year, but a lack of cuts would likely cause some investors to keep their distance from the crypto market.
The next year could be especially volatile
The U.S. economy is performing relatively well, as evidenced by low unemployment levels and robust consumer spending. However, if large layoffs persist and spending slows, then further pain could be ahead for Bitcoin investors.
Most economic slowdowns don't occur rapidly, so if we're entering one, there will likely be some mixed data on what's happening. The next year could be choppy for Bitcoin as investors try to gauge the state of the economy.
