After a terrible 2022, when the overall cryptocurrency market shed about two-thirds of its value, investors are starting to warm up to the industry again. This is a surprising turn of events, given the string of major blow-ups that happened last year with certain crypto enterprises that should’ve completely damaged trust in the digital asset market.
The bullish tone is welcome news for cryptocurrency investors looking to put money to work in the volatile industry. Without a doubt, among the more than 22,000 various digital assets out there, Bitcoin (BTC 0.65%) is the one I’d buy right now without hesitation. Here’s why.
A strong start to 2023
Since hitting an all-time high of nearly $69,000 per coin in November 2021, Bitcoin cratered last year, down 65% in 2022. Aggressive interest rate hikes by the Federal Reserve, put in place to curb soaring inflation, certainly helped to turn investor sentiment from positive to negative. This also adversely impacted many growth tech stocks, as speculative assets got pummeled.
But as inflation, as measured by the widely followed Consumer Price Index, continues to show signs of cooling down, it appears as though sentiment has shifted to optimism again. The entire cryptocurrency market gained 34% in value in January, with Bitcoin climbing 37% in the month. Perhaps investors expect the Federal Reserve to return to a more accommodative stance sooner rather than later.
Of course, it’s obvious that Bitcoin’s price movements in the near term are heavily influenced by shifts in monetary policy. So, it’s virtually impossible to try to predict what will happen next. What I find encouraging is the renewed optimism surrounding Bitcoin right now. This will help to drive greater interest in the world’s top cryptocurrency, something that could support a continued bull run in 2023.
A legitimate financial asset
Besides some recent positive momentum, Bitcoin is well on its way — if it’s not there already — to becoming a legitimate financial asset. There are various ways to gain access. For example, investors could buy Bitcoin through Block‘s Cash App, Coinbase, or Robinhood Markets. Plus, there are a number of exchange-traded funds on the market that help make it easier to get exposure to Bitcoin.
Individual investors can get their cues to buy this digital asset from some well-known capital allocators. Famed tech investor Cathie Wood is extremely bullish on Bitcoin. Bill Miller, one of the most successful value investors ever, recently said that Bitcoin is one of his top personal holdings.
Then there’s the regulatory landscape to think about. A state senator from Arizona recently pushed through a bill to make Bitcoin legal tender in the state, similar to what happened in El Salvador in late 2021. It’s anyone’s guess whether or not this will pass and become law, but it shows that progress is being made with efforts to legitimize Bitcoin.
An important catalyst
At a high level, Bitcoin allows two unrelated parties to send and receive value to each other directly without a central intermediary. This is no doubt a breakthrough innovation. However, I think Bitcoin’s most important feature is its absolute scarcity. There will only ever be 21 million coins mined, and this is something that won’t change.
About every four years, the Bitcoin network undergoes something called a “halving,” when the block rewards that miners receive get cut in half. In the time leading up to this event, Bitcoin has historically started to trend upward. The last halving occurred in May 2020, with the next one expected to happen in March 2024.
While we shouldn’t just blindly assume that Bitcoin’s future price trajectory will exactly match what happened in the past, the event will still shine a spotlight on Bitcoin’s fixed supply cap. And this alone can drive higher demand from investors who want a piece of an asset that isn’t subject to inflationary pressures like the U.S. dollar is.
This favorable characteristic is enough of a reason to invest even a little bit of your hard-earned savings in Bitcoin.
Neil Patel has positions in Bitcoin and Block. The Motley Fool has positions in and recommends Bitcoin, Block, and Coinbase Global. The Motley Fool has a disclosure policy.