In a note titled “The financial market surprises of 2023” standard charter has predicted that the price of Bitcoin (BTC 1.26%) it could drop another 70% to $5,000 in the new year due to rising interest rates and a continued sell-off in the tech sector.
On the other hand, venture capitalist and early Bitcoin advocate Tim Draper, also an early investor in Baidu Y tesla – recently predicted that Bitcoin will hit $250,000 by mid-2023.
There is a wide chasm between these two numbers, but that spread is what makes a market, especially for a volatile asset like Bitcoin. The true outcome will probably be somewhere in the middle, but I think Bitcoin is likely to do better in 2023 and beyond than it did in 2022. Here’s why Bitcoin is my top cryptocurrency to buy early in the new year.
The problem with centralized exchanges
the collapse of land this spring, plus the more recent bankruptcies of high-profile crypto exchanges and lenders like the Celsius Network, BlockFi, and ultimately FTX, have dealt a serious blow to the credibility of the crypto industry. These events shook investor confidence and intensified the Bitcoin selloff. But take a step back and you’ll see that these events actually highlight the value of an asset like Bitcoin, which is truly decentralized and trustless, unlike the aforementioned exchanges.
By using a centralized crypto exchange like FTX or BlockFi to buy or host cryptocurrency, customers essentially made the decision to trust that exchange and its leadership. But the general public has little visibility into how those exchanges or protocols work, making it difficult for users to make a fully informed decision. These platforms differ from banks in that they are not insured by the FDIC. And unlike traditional brokerage firms, there is little regulatory oversight governing their behavior.
A truly mistrusted and decentralized asset
Of course, the desire for a peer-to-peer financial system that did not depend on banks or regulators was a key catalyst for the birth of Bitcoin in the first place. In fact, to this day, much of Bitcoin’s appeal lies in the fact that it is trustless, open source, and decentralized.
The transparent nature of Bitcoin’s distributed ledger technology means that anyone in the world can search for or verify any transaction on the blockchain. Users who buy Bitcoin and then store it in their own wallets or hardware ledgers don’t have to worry about the risk of losing access to their Bitcoin if a centralized entity like FTX or Celsius goes bankrupt.
While centralized entities like FTX have struggled with taking too much leverage, Bitcoin does not have a central authority that is even can make a bad decision that could jeopardize the network. The network is controlled and protected by a decentralized group of miners from around the world who validate blocks of transactions.
Unlike other high-profile cryptocurrencies, the Bitcoin network saw no downtime in 2022 and remained a leading example of a secure blockchain network without attacks or disruptions in a year when high-profile exploits plagued to many other cryptocurrencies. With Bitcoin, you don’t need to trust anyone to use it, which was a big part of its appeal in the beginning and still is today.
Gaining momentum among financial giants
These characteristics make Bitcoin a unique financial asset. But do they mean anything if people don’t use Bitcoin? Fortunately, Bitcoin adoption is accelerating at a steady and remarkable rate.
Alphabetfor example, it recently announced that it will accept payments for its Google Cloud service in Bitcoin starting in 2023. Traditional financial institutions are also increasing their support for Bitcoin holders. Bank of New York Mellon, the oldest bank in the United States and the largest custodian bank in the world, will now allow its clients to hold and transfer Bitcoin using its Digital Asset Custody platform. Bank of New York Mellon found that 91% of institutional investors are interested in investing in “tokenized products” and that 41% already hold cryptocurrencies. MasterCard is working with Paxos to allow traditional banks to offer cryptocurrency trading.
A hedge against hyperinflation
Beyond big tech companies and financial institutions, Bitcoin is also a financial safety valve for people around the world. In countries like Argentina, where inflation has been rampant for years, many people seeking to mitigate the effects of local currency devaluation use Bitcoin as a store of value and a medium of exchange. Governments continue to print more of their local currency to make up the shortfall between spending and money collected, which in turn devalues those local currencies. But Bitcoin’s finite supply of 21 million means users need not worry that a central body will erode the value of tokens by issuing more coins.
It must be acknowledged that Bitcoin is down 65% year to date, which certainly throws some cold water on its status as an inflation hedge. However, inflation in Argentina is approaching 90% this year, while Turkey’s inflation rate has also exceeded 80%. Even with Bitcoin’s disappointing performance this year, believers in hyperinflation countries are clinging to the hope that future returns for the cryptocurrency are more promising than those of their home currencies.
It could be argued that people in countries suffering from severe inflation would have been better off buying US dollars or euros. But around the world, many governments have made it increasingly difficult for citizens to buy foreign currency, implementing currency restrictions and high exchange rates.
Bitcoin struggled in 2022, but as a trustless, decentralized financial asset that powers a truly global network of users, it still offers the same appeal as it always has. The problems at FTX highlighted the shortcomings of centralized entities, highlighting the case of Bitcoin itself. It may not hit Tim Draper’s $250,000 price target in 2023, but there is plenty of room for upside between his prediction and the roughly $17,000 that Bitcoin is valued at today.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Michael Byrne has positions in Bitcoin. The Motley Fool has positions and recommends Alphabet, Baidu, Bitcoin, Mastercard and Tesla. The Motley Fool recommends Standard Chartered Plc. The Motley Fool has a disclosure policy.