Bitcoin’s price movement is totally unpredictable. There is no way for any individual, analyst or otherwise, to truly know what the future holds for Bitcoin.
As an investor deciding whether Bitcoin is still a good investment, you need to do your due diligence, and only invest what you’re willing to lose. That said, there are likely many wondering whether Bitcoin is still a good investment. Is it too late to invest, or is now a good time? Before getting into some of the nuances that come with investing in Bitcoin, we should recap what happened in 2022, and outline the fundamentals behind the digital asset.
A Recap of Bitcoin’s 2022
The Bitcoin network didn’t do anything specific that would warrant the downtrend in price that it experienced in 2022. A variety of other players in the space, in conjunction with an array of other macroeconomic factors, pulled Bitcoin’s price down along with the rest of the digital asset market. While traditional markets didn’t fare all that much better in 2022, they certainly didn’t have the scandals which cryptocurrency markets did.
In January 2022, Bitcoin was trading at over $40k USD, the price even got above $47k in March. In early May, Bitcoin’s price was still floating around $36-39k. Then, Terra (LUNA) and its UST stablecoin experienced an epic collapse which saw billions of dollars wiped off the digital asset market. Bitcoin’s price went from just over $39k on May 4th, to about $28k just one week later on May 11th.
A war between Russia and the Ukraine had also broken out in February and continued through the remainder of the year. This had a variety of macroeconomic effects on Bitcoin and general digital and traditional asset markets.
June 2022 saw Bitcoin experience its worst monthly price drop in over 10 years, losing over 37% during the course of the month. In addition, the Consumer Price Index (CPI) released that month showed that inflation year over year was 8.6%. This was the highest year to year increase in over 40 years. The CPI combined with consistent and high federal interest rate hikes affected investor sentiment towards risk assets such as Bitcoin. This caused the asset to fall below $20k, where it remained for the rest of 2022.
Terra’s epic collapse had many other effects on the market as well, with popular lending platforms such as Voyager and Celsius filing for bankruptcy on July 13 and 5, respectively. While neither the Voyager or Celsius collapse was Bitcoin’s fault, they were still centralized institutions that lost a lot of investor money. This greatly affected investing sentiment like the CPI and interest hikes.
Then came FTX, one of the biggest scandals that the digital asset market has ever seen. FTX Exchange’s collapse only further exacerbated negative market sentiment towards Bitcoin and cryptocurrencies in general, with Bitcoin’s price dropping as low as $15k. The bankruptcy of one of the largest crypto exchanges in the world triggered all sorts of responses including the now requisite proof of reserves required to be provided by crypto exchanges such as Binance, Coinbase, and KuCoin.
Bitcoin’s Fundamentals Haven’t Changed
The reality is that despite the downturn which Bitcoin’s price experienced in 2022, nothing changed about the asset itself. It hasn’t stopped being developed, with the launch of Ordinals happening earlier in 2023, and continuous work on the Lightning Network as well.
Bitcoin is still a peer-to-peer payment system that can’t be controlled by any one entity, and it still has the greatest level of decentralization compared to all the other crypto assets on the market. Transaction speeds and costs are being mitigated by the growth of the Lightning Network, which can process 1 million transactions per second, with the only limitation being that there needs to be enough people using the network to properly route payments.
Bitcoin is still deflationary, meaning that the amount released through mining rewards will diminish over time and that it has a fixed, unchangeable quantity of 21 million BTC. This is quite a stark contrast to something like the USD, who’s supply has gone from about 2 trillion USD over 10 years ago, to over 10 trillion now.
Bitcoin is still also an extremely secure network. Despite the cries that proof of work systems are bad for the environment, Bitcoin’s energy use is overblown by mainstream media. The security of the network necessitates energy use, because if it required no energy to mine Bitcoin then someone could maliciously attack the network. The other aspect of Bitcoin mining that is generally glossed over on mainstream media outlets is that a large portion of its energy consumption comes from renewable sources or buying energy that would otherwise be wasted.
Still a Good Investment?
Whether Bitcoin is still a good investment in 2023 is more dependent on your personal views of fiat currencies, digital assets, and the overall current financial system than anything else. For those in nations with weaker fiat currencies, such as El Salvador, Bitcoin is already seen as a good alternative to fiat. Citizens of countries that are already experiencing hyperinflation are more likely to be drawn to Bitcoin than those in the US for example.
Those that believe in the current financial system are likely to scoff at investing in Bitcoin, as they don’t think there’s any real backing to the digital asset. But, the reality is that there isn’t really any backing for fiat currencies other than a promise from the government, and as seen with the recent banking failures in the US, that promise isn’t guaranteed.
Those that think the current financial system needs an overhaul are the most likely to find Bitcoin an attractive investment asset. Buying a deflationary asset rather than one that gets printed out of thin air whenever it’s needed should be a no brainer. Of course, there needs to be a larger majority to this view for real change to occur.
Essentially, if you believe in the fundamental ideas that birthed Bitcoin after the 2008 financial crisis, then it’s still a good investment. If you’re still skeptical, then it likely isn’t a good investment, at least for your specific situation. The key is to figure out where you stand, and then go from there.
Closing Thoughts
If you’re a believer in the fundamentals behind Bitcoin then it’s likely still a good investment in your eyes. So, go ahead and invest, because if you’re right, you’ll be glad you did. If you have any doubts about digital assets, Bitcoin or otherwise, then don’t. There’s no reason you should feel obligated to invest in what is still a risky asset. In the end, someone’s prediction about the price going to X will be right, and someone’s will be wrong, but there’s no way to truly predict whose. The only thing you can do is your own due diligence.
