Is Bitcoin A Smart Investment For Your Portfolio Now (Cryptocurrency:BTC-USD)

On January 20, 2023, the price of Bitcoin (USD-BTC) broke the downtrend that had been observed for fourteen months and thus brought a touch of optimism to the crypto market. bitcoin has been consolidating in the $21,500-$25,300 range since late January, signaling the first significant signs of market stabilization as the Fed continues to raise interest rates and heighten geopolitical tensions around the world due to a balloon Chinese entering US space and escalating hostilities between Russia and Ukraine.

This article will present the factors that are still exerting downward pressure on the price of coins and will not allow to talk about a complete change from a bearish trend to a bullish one. On the other hand, more and more signals in the market indicate the beginning of a recovery in investor interest. in cryptocurrencies following the devastating news about hacker attacks on crypto exchanges and even the bankruptcy of some of them in the second half of 2022.

Increase in fees on the Bitcoin network

One of the first factors starting to signal the transition of the crypto industry from a down cycle to a bull cycle is the increase in the average transaction fee on the Bitcoin network. The key reason for the increase in fees is the increase in the number of transactions on the Bitcoin network, and as a result, the competition for inclusion in blocks is intensifying. Consequently, cryptominers are starting to select transactions with higher fees to maximize revenue for their services.

After reaching a multi-year high in November 2021, the BTC price trended down until January 16, 2023. At the same time, fee income remained extremely low for just four months after the price of Bitcoin will reach $65,000 per coin. After many market participants became disillusioned with cryptocurrencies and apathy reigned, the relatively low prices attracted new traders and investors who took advantage of the situation.

At the moment, we can see the fee momentum breaking above one, indicating an increase in demand for block space. As a result, this not only leads to a recovery of the miners' profits, but may also confirm the rise of hope among the members of the crypto community with the subsequent end of the crypto winter.

The balance of cryptocurrency exchanges continues to fall

In recent quarters, the cryptocurrency industry has been inundated with news from various information exchanges. On October 6, 2022there were reports on many information resources that hackers successfully hacked into the blockchain associated with Binance, stealing $566 million worth of BNB, Ethereum (ETH-USD), Ghost (USD-FTM), polygon (MATIC-USD), and other currencies.

And in mid-January 2023, FTX stated (USD-FTT) in a report to creditors that $415 million in digital assets were stolen due to hacking attacks. And as a result, many investors began to be more conservative in holding Bitcoins, Litecoins (USD-LTC), and other coins, moving them to more secure offline crypto wallets. Furthermore, trust continues to decline in exchanges that were actively used to transact coins through Q3 2022, and at this time, many of their clients prefer to keep their assets under their control.

On November 22, 2022, the total number of Bitcoins held by Coinbase (CURRENCY) was around 531,242, and the next day there was a significant withdrawal of funds of more than 44,000 BTC as a result of the spread of adverse reports about the bankruptcy of FTX. On a larger scale, there is a trend to reduce the holding of coins by investors on the balance sheet of a cryptocurrency exchange. So, since the beginning of 2022, Coinbase clients have withdrawn just under 195,000 Bitcoins, putting additional pressure on the financial position of one of the world's largest exchanges.

In addition, one of the additional reasons for the reduction of the Coinbase balance may be the desire of investors to make a profit on their investments due to the increase in the price of Bitcoin by just over 40% over the last month and a half. Overall, in the fourth quarter of 2022, the company posted an operating loss of $474.5 million, in stark contrast to the last three months of 2021, during which Coinbase posted its highest operating income to date. The continued downward trend in operating income from one quarter to the next is a red flag and may be a major cause for concern for investors and the entire crypto community.

Besides, Binance partner in the issuance of Binance USD, PaxosHe's under the gun. The US Securities and Exchange Commission has started a discussion with Paxos about the need to change the legal status of this stablecoin, and the regulator is also considering action against the company. In the event that Binance USD (BUSD-USD) is recognized as a security, this will open Pandora's box, as a result of which many other stablecoins may receive this status, leading to stricter regulation and loss of interest from traders and investors in the industry. the cryptography. You can already see how the balance of Bitcoin on Binance (USD-BNB) has decreased by 10.6% from the peak of the fourth quarter of 2022.

Fed rate hike

At the meeting of the Federal Open Market Committee, which took place from January 31 to February 1, most of its participants agreed that it is necessary to raise the interest rate by 0.25%, which is in line with the expectations of investors and traders. However, the negative moment was the information that various participants in the meeting were in favor of increasing the interest rate by 0.5%, which could generate higher borrowing costs and, consequently, a slowdown in economic growth. . One of the possible reasons for the desire of some FOMC members to tighten monetary policy and thus raise the benchmark rate by 50 basis points may be the fact that the rate of deceleration in inflation is slowing and, as As a result, it is necessary to act more aggressively to reach the 2% inflation target. Thus, the annual inflation rate in the United States was 6.41% as of January 31, 2023, which is only 0.04% less than the previous month.

If the Fed raises the interest rate by 0.5%, this will strengthen the US dollar and increase investment interest in US Treasuries ($10Y) (US2Y) compared to Bitcoin, which is trying to break out of the bear cycle.

Conclusion

After a fourteen-month bear market that brought frustration and apathy to various digital assets from members of the crypto community, the first significant signs of their recovery finally appeared on the horizon.

During the bear period, there has been a redistribution of Bitcoin ownership from investors who are less disciplined and less confident in the asset to those who clearly understand the value of cryptocurrencies in a rapidly evolving digital world. In recent weeks there has been a significant increase in the number of transactions, which positively affected the profits of miners. In the first quarter of 2023, two key players in the crypto industry, riot platforms (RIOT) and Cabin 8 Mining (CABIN) announced an increase in Bitcoin mining. Given the rise in the price of cryptocurrencies and the increase in the number of mining rigs, it can be said with great confidence that the largest Bitcoin mining companies have successfully passed the Mr. Market test of the strength of their financial position. .

According to a report by Fidelity Digital Assets, a subsidiary of Fidelity Investments, European and US institutional investors have reported an improvement in the perception of cryptocurrencies and continue to increase investment in various digital assets. In my estimation, in 2023, there will be a tightening of regulation by various government agencies, which, on the one hand, will reduce the appetite of speculative traders in the short term, but on the other hand, will attract attention in the long run. -term and the most conservative investors. So, for example, according to ARK Invest optimistic forecastthe price of Bitcoin can reach 1.48 million dollars by 2030, but with a more conservative estimate, Katie Wood's company (ARKK) can reach the price of the most popular cryptocurrency in the amount of $258,500, which is significantly higher than current values. In addition, many institutional market participants continue to reduce their interest in commodity behemoths like Exxon Mobil (XOM), Occidental Petroleum (OXY) and Chevron Corporation (CLC) and begin to increase their appetite for riskier assets.

In conclusion, I would like to point out that, based on my model, in the next two weeks, I expect a correction in the price of Bitcoin due to the strengthening of the US dollar against other currencies during the Fed rate hike and also the tightening . of tensions between the administration of US President Joe Biden and the Chinese government. After that, the accumulation phase can come, which I will use to buy shares in Bitcoin mining companies and ETFs involved in digital asset management.

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