Bitcoin has had an incredible 2023.
Since January, the world’s biggest cryptocurrency has rallied from $16,500 to $42,8001.
This surge of 160% easily makes it one of the year’s best-performing assets2.
Bitcoin’s price remains about 40% below all-time highs of $69,000 established back in 2021 — and ardent believers believe this digital asset has further room to run.
Here are three reasons why.
1. The halving
Every four years, Bitcoin undergoes an event known as “the halving“.
This is where the number of new BTC entering circulation is slashed by 50%.
In April, the daily creation of Bitcoin will permanently fall from 900 BTC to 450 BTC.
And when rising demand is met with falling supply, this can cause prices to rise.
Only 21 million BTC will ever exist. Of this, 19.5 million has already been mined, over 4 million have been lost forever3, and only a small handful regularly changes hands in trading markets.
It’s this scarcity that has led Bitcoin to be compared to digital gold.
The supply of traditional currencies came into sharp focus during the coronavirus pandemic, where high levels of quantitative easing led to rampant inflation4.
2. ETF rumours
This is significant because it would allow institutions and high net-worth individuals to gain exposure to BTC without directly owning the asset.
Major investment companies such as BlackRock have filed applications to launch an ETF, and the US Securities and Exchange Commission must decide whether to approve it in January.
So… what would the impact of an ETF be? Well, it could dramatically increase demand for Bitcoin, boost its liquidity, and increase its legitimacy in traditional financial circles.
A lack of regulation in the cryptocurrency sector has been a long-running issue. Politicians don’t like that, and actually, businesses operating in the industry don’t either. They want clear rules of the road to boost confidence among consumers following the high-profile collapse of FTX7.
3. Interest rate rises
The third factor in Bitcoin’s price could be interest rates.
Back in December 20218, the Bank of England’s base rate was 0.1%. Fast forward two years, and this now stands at 5.25% — increasing the cost of borrowing significantly.
Bitcoin is generally regarded as a risk asset because of how volatile its price can be.
Higher interest rates can lead cautious investors to prefer savings accounts instead because they deliver guaranteed returns with little danger of something going wrong.
The City of London and Wall Street alike have been looking for signs that central banks will start to slash interest rates, which will occur when inflation is closer to a target level of 2%.
If these rate cuts occur in 2024, Bitcoin could ultimately look more attractive.
As we’ve mentioned, Bitcoin is a hugely volatile asset and you should never invest more than you can afford to lose.
But dedicating a small amount of your portfolio to BTC, and using strategies such as dollar cost averaging, can help you diversify.
You can invest in Bitcoin through one of our reviewed crypto exchanges in the UK.
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- https://www.coingecko.com/en/coins/bitcoin ↩︎
- https://insights.glassnode.com/the-week-onchain-week-49-2023/ ↩︎
- https://www.chainalysis.com/blog/bitcoin-market-data-exchanges-trading/ ↩︎
- https://www.un.org/development/desa/dpad/publication/un-desa-policy-brief-no-129-the-monetary-policy-response-to-covid-19-the-role-of-asset-purchase-programmes/ ↩︎
- https://www.reuters.com/technology/us-bitcoin-etf-issuer-talks-with-sec-have-advanced-key-details-sources-2023-12-07/ ↩︎
- https://www.investopedia.com/spot-bitcoin-etfs-8358373 ↩︎
- https://www.forbes.com/sites/darreonnadavis/2023/06/02/what-happened-to-ftx-the-crypto-exchange-funds-collapse-explained/ ↩︎
- https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate ↩︎