This has been a standout year for bitcoin (BTC), the original cryptocurrency and still the largest by market capitalization. After hitting multi-year lows in 2022, bitcoin staged a powerful comeback across 2023, drawing renewed investor attention and sparking lively debate about where the digital currency could head next.
How high is bitcoin’s price?
Bitcoin faced significant headwinds in 2022, including aggressive Federal Reserve rate hikes and the collapse of major crypto firms such as FTX. Higher interest rates typically reduce investors’ appetite for risk and can dampen demand for speculative assets like bitcoin. Rate hikes also aim to curb inflation, which can lessen bitcoin’s appeal as an inflation hedge.
In the second half of 2023 bitcoin rebounded strongly. Growing investor demand and interest in bitcoin-denominated exchange-traded funds (ETFs) helped push the price from about $16,625 at the start of the year to $41,452 as of Dec. 18, 2023 (U.S. dollars), according to CoinMarketCap. That represents roughly a 149% gain year-to-date. For context, the S&P 500 rose nearly 23% and the S&P/TSX Composite gained over 7% in the same period.
The rally also lifted the combined market capitalization of cryptocurrencies above $1.5 trillion for the first time since May 2022, suggesting a thaw in the prolonged crypto winter that followed 2021’s highs.
Analysts generally expect the positive momentum to carry into the new year, though predictions vary widely. Below are the main factors that contributed to bitcoin’s rebound and what might influence its trajectory in 2024.
Red-hot inflation and banking turmoil
With persistent inflation in 2022 and 2023, central banks including the Bank of Canada and the U.S. Federal Reserve raised interest rates repeatedly in an effort to restore price stability. Those moves unsettled equity markets and pushed some investors to seek alternatives to traditional stocks and bonds.
The banking disruptions in early 2023 — notably the failures of Silicon Valley Bank and Signature Bank, among the largest U.S. bank collapses since the 1930s — further shook confidence in parts of the financial system. That episode prompted some investors to diversify their holdings and, for a segment of the market, increased interest in bitcoin as an alternative asset, supporting its price recovery.
Anticipation of spot bitcoin ETFs
A major tailwind for bitcoin in 2023 was the growing expectation that the U.S. Securities and Exchange Commission (SEC) might approve spot bitcoin ETFs. (Update: The SEC approved several spot bitcoin ETFs on Jan. 10.) A spot bitcoin ETF holds the underlying asset and is designed to track bitcoin’s market price directly, unlike futures-based ETFs that rely on derivative contracts.
Spot ETFs make it simpler for mainstream investors to gain exposure to bitcoin through regular brokerage accounts, increasing accessibility and potentially broadening demand. Canada approved spot bitcoin ETFs in 2021, but U.S. approval carries extra weight because of the larger investor base and market scale.
Growing institutional interest
Institutional demand has also played a meaningful role. Large investors have been increasingly interested in bitcoin and ethereum, attracted by limited supply dynamics and potential portfolio diversification benefits. This year institutions moved significant capital into BTC — more than $1 billion according to some industry trackers — and many are watching the upcoming bitcoin halving expected in April 2024.
Halving reduces the number of new bitcoins created through mining roughly every four years, which can tighten supply and influence price over time. That scarcity narrative appeals to investors seeking assets with constrained issuance.
Falling bond yields
Bitcoin’s price often correlates inversely with U.S. bond yields. When yields fall, risk assets including cryptocurrencies tend to become more attractive; when yields rise, fixed-income returns compete more effectively with riskier investments. The decline in bond yields in the latter part of 2023 helped support bitcoin’s advance.
What to expect for bitcoin in 2024
Outlooks for 2024 remain broadly optimistic among analysts, but price targets diverge widely. Some forecasts foresee a return to 2021’s all-time highs above $69,000, while more aggressive predictions suggest six-figure outcomes. At the same time, bitcoin’s short history is marked by sharp swings, and the asset remains highly volatile.
Investors should approach bitcoin with cautious optimism. Geopolitical shocks, financial market disruptions, regulatory changes, litigation, scams and cybercrime can quickly alter market sentiment and trigger steep price moves. Cryptocurrencies are speculative by nature, so anyone considering exposure should invest only what they can afford to lose and be prepared for rapid price fluctuations.
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