The rapidly developing cryptocurrency ecosystem is entering a new phase in 2023 with regulations from the USA and the European Union. So where will the Bitcoin price go in 2023 according to the metrics?
Models fail on bitcoin price
cryptocoin.com As you follow, Bitcoin has had its ups and downs along with the rest of the digital asset market throughout 2022. The leading crypto started the year with a change of hands around $46,700. It is currently trading at $16,560, down over 64%. As a result, the market cap of the coin fell from around $900 billion on January 1, 2022, ending the year at approximately $320 billion.
It is possible to attribute the price drop of Bitcoin to the extraordinary conditions that the entire cryptocurrency market has been going through this year. In this respect, it is important to reevaluate the 2022 price predictions made by various market entities. One of the most popular predictions was analyst PlanB’s Bitcoin Stock-to-Flow (S2F) model.
The S2F model predicted that BTC would hit around $110,000 by December 2022. Cryptocurrency finished the year almost below the 85% target. This raises questions about the validity of the price model. Stock-to-flow models are often used to price goods in traditional markets because they take into account two variables for an asset: stock and flow. ‘Stock’ refers to the current total supply of the asset. ‘Flow’ refers to the new supply of the asset that is created each year.
Antoni Trenchev, co-founder and managing partner of Nexo, a digital asset management platform, shared his thoughts on the validity of the S2F forecasting model:
There are many factors that can affect the price of Bitcoin, including market demand, regulatory changes, and technological developments. The S2F model is a tool that can be used to make predictions about the future price of Bitcoin. However, it is important to keep in mind that this is based on certain assumptions and is not a definitive guide for the future.
Besides S2F, other models have been used to try to predict the price of Bitcoin in the near and far future. Two popular theories are Elliott Wave Theory and Hyperwave Theory. While both have their roots in traditional financial markets, their success in predicting the price of BTC has also been relatively limited.
“Bitcoin is a completely unpredictable asset!”
Considering that Bitcoin began its journey as an asset only a little over a decade ago, it makes sense to say that the cryptocurrency is still in the new stages of price discovery, compared to commodities like gold or silver and other leading tech stocks like Apple and Microsoft. Therefore, while there are various BTC price predictions, it is important to remember the limited availability of cyclical data to account for these patterns.
Trenchev adds that there are many different models and approaches that can be used to try to predict the price of Bitcoin. Some people use technical analysis, which involves examining historical price and volume data to identify patterns and trends. Others use fundamental analysis, which involves evaluating the underlying factors that can affect an asset’s supply and demand. No single model or approach is universally considered the most reliable for predicting Bitcoin’s price. It is also very important to consider a number of factors when making any investment decision. In line with Trenchev, Alex McCurry, CEO and co-founder of blockchain solutions provider Solidity.io, says:
Bitcoin is a completely unpredictable asset. The only thing that can be sure when it comes to Bitcoin is the underlying value of the Bitcoin network and the value it offers to its holders and investors. Therefore, long-term adoption and value can be predicted in the macroeconomic environment. But it is impossible to time an exact price perfectly.
An important consideration could change Bitcoin price trends
Since Bitcoin is not a smart contract compatible network, the utility of the asset is limited to one payment way. This is slowly starting to change. Bitcoin now offers more benefits than ever, powered by the Lightning Network (LN). LN is a layer-2 payment protocol built on top of the Bitcoin network that enables fast, seamless peer-to-peer transactions. It helps to greatly improve the scalability of the network. Most recently, Michael Saylor’s MicroStrategy announced plans to launch Lightning Network powered software and solutions in 2023.
MicroStrategy also continues to add Bitcoin to its treasury. Between November 1 and December 21, 2022, the company purchased 2,395 BTC for a total of $42.8 million at an average price of $17.181. For tax reasons, he sold 704 BTC for a total of $11.8 million on December 22, at $16,776 per token. As a buyback, the company purchased 810 BTC for $13.6 million in cash on December 24. According to data from BitcoinTreasuries, this puts the firm’s holdings at 132,500 BTC. At the time of this writing, he has approximately $2.2 billion worth of BTC.
Global investment manager VanEck has released 11 crypto predictions for 2023. Among them, he claimed that BTC would drop to $10,000-12,000 in the first quarter ‘in the midst of a wave of miner bankruptcies’ and rise to $30,000 in the second half of 2023. McCurry said, “I believe Bitcoin will recover in 2023. I also think that by 2024, Bitcoin will reach its all-time high of significantly higher than $69,000 in 2021,” he agrees.
Trenchev said, “It is possible for the Bitcoin price to jump to $30,000 in the second half of 2023. But it is also important to keep in mind that the Bitcoin price is highly volatile and can be affected by a wide variety of factors.”
Exploration for derivatives market and Bitcoin price
Despite the unpredictable, volatile nature of the bitcoin price, the asset’s derivatives market is an important indicator of its current and future sentiment. According to data from Coinglass, the Bitcoin futures market currently has over $9 billion in short positions (OI). At the same time, the short position value of the Bitcoin options market stands at $3.4 billion. Also, over 76% of OI is located on cryptocurrency derivatives exchange Deribit.
Deribit’s chief commercial officer, Luuk Strijers, has this to say about what the options data for 2023 reveals about the market’s Bitcoin price sentiment:
The overall put-call rate for June 2023 is 0.24, which is pretty low. Since the number of pending calls is three times more than the sale, this usually means a bullish sentiment. Maximum pain is at $19,000 and also showing upside potential. Investors are positioning on larger strike prices ($20,000, $25,000 and $30,000). Obviously, higher strikes have a much lower premium. Therefore, they can be viewed as a reverse bet or used by call sellers to generate returns.
The maximum pain price is the price point at which the largest number of options are losing. Strijers also said, “Since the FTX boom, investors have been standing on the sidelines. He seems to be waiting for macroeconomic news as well as industry related news. We’ve had new lows in implied volatility and shorts are currently trading at the lows of the 30s. In fact, we see that diaries are traded below 30%. At the same time, liquidity is currently lower than normal,” he says.
Market uncertainty aside, regulations coming in 2023 could bring stability to the market. Because investors who feel that more oversight is provided to the space will likely feel more secure.