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Down more than 65% in 2022, Bitcoin (BTC -0.18%) has become an increasingly polarizing cryptocurrency. On one hand, the Bitcoin bears predict that Bitcoin could fall as much as 50% in 2023 before a market bottom is reached. On the other, the Bitcoin bulls think we’ve already hit a market bottom and Bitcoin could actually double in price in 2023.
Right now, I’m on the side of the Bitcoin bulls. Bitcoin simply has the best risk-reward profile of the major cryptocurrencies. Here’s a closer look at my reasoning.
In terms of risk management, one major factor in Bitcoin’s favor is that it has a historical track record of bouncing back from miserable years. In 2014, for example, Bitcoin fell 58% before bouncing back the next year. And in 2018, the same pattern occurred, with Bitcoin falling 73% before bouncing back the next year. So, while recognizing that past performance is no guarantee of future performance, there is at least a historical precedent in place for Bitcoin to recover in 2023.
Image source: Getty Images.
Moreover, Bitcoin has recovered from at least five different bear market crashes over the past decade. In 2011, for example, Bitcoin experienced a stomach-churning “flash crash” that resulted in Bitcoin falling from $32 to $0.01 in a matter of days. And similar types of huge market nosedives have occurred in 2015, 2017, and 2021.
In other words, Bitcoin falling off a cliff in 2022 is really nothing new. That’s one big reason why there are so many loyal Bitcoin maximalists out there, willing to buy and hold forever.
Is it a historical coincidence that three of the worst years in Bitcoin’s existence (2014, 2018, and 2022) have occurred almost exactly four years apart? Many market analysts think there is a pattern in Bitcoin’s crypto market performance that is inherently linked to the algorithm that controls the circulating supply of Bitcoin.
When Satoshi Nakamoto originally created Bitcoin, he put into place a mechanism known as the halving, which takes place on a regular schedule. In a halving event, the reward for mining each new block of Bitcoin falls by exactly one-half every four years. Right now, the mining reward for Bitcoin is 6.25 BTC. But in 2024, this reward will fall by one-half, to 3.125 BTC.
In theory, Bitcoin should become more valuable with every new halving. Traders anticipate this in advance of the halving and start bidding up the price of Bitcoin approximately 15 months in advance. With the next halving scheduled for early 2024, that means the process of price appreciation should start happening in 2023.
Crypto hedge fund Pantera Capital has modeled this phenomenon extensively and concluded that Bitcoin will rise throughout 2023 and into early 2024 to a level of $36,000 before exploding in price to a level of $149,000. If that is indeed the case, the time to get aboard the Bitcoin bandwagon is now.
Finally, one major reason why I’m bullish on Bitcoin in 2023 is due to its growing acceptance as a global medium of exchange. With every passing year, Bitcoin becomes more popular as an online payment option. And new countries continue to embrace Bitcoin as a way to jump-start economic growth or improve the economic condition of their citizens.
In December, for example, Brazil enacted the so-called “Bitcoin bill” that will put into place a comprehensive regulatory framework for how Bitcoin can be used as both a means of payment and as an investment asset within the country. As more countries follow Brazil’s lead, this will only make Bitcoin more valuable than it already is. It’s just simple supply and demand.
Put all these factors together, and Bitcoin is my best cryptocurrency to buy right now. It has a long track record of bouncing back from miserable years and market crashes. It has a strong catalyst in place to appreciate in price over 2023 and into 2024. And it benefits from growing global acceptance of Bitcoin as a medium of exchange and a form of payment.
Given that Bitcoin has traditionally always led a market higher or lower, if you believe crypto is heading higher in 2023, you need to be thinking about adding Bitcoin to your portfolio right now.
Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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