on the crypto
Heading into 2023, cryptocurrency markets remain as volatile as ever. Opinions on the future of the industry are mixed, and high-profile names in the cryptocurrency world have been quick to come up with a wide range of predictions for the year ahead.
But despite the uncertainty and volatility, one thing remains the same: it is impossible to predict the cryptocurrency market without taking into account Bitcoin (quotation BTC).
For this reason, Bitcoin is my top cryptocurrency to buy in December. At a time when nearly all of the top 100 cryptocurrencies are in the red for the year, I feel more comfortable seeing Bitcoin break away from the pack and lead the next cryptocurrency market rally. Here are three reasons why.
Escape to quality
In the aftermath of the FTX cryptocurrency exchange crash, both retail and institutional investors are shifting their money to the least risky assets possible. If these investors keep their funds in the cryptocurrency asset class, that typically means moving into Bitcoin, which now accounts for nearly 40% of the entire cryptocurrency market capitalization. While all cryptocurrencies are inherently volatile and risky, Bitcoin is arguably the least risky of all major cryptocurrencies.
A long series of bear market recoveries
Additionally, Bitcoin has a long track record of recovering from previous market crashes. Since its inception in 2009, Bitcoin has gone through at least five different bear market cycles, all of which are just as shocking and dizzying as the current market cycle. The bear market crash of 2011 was particularly sickening: In just a few days, Bitcoin dropped from $32 to $0,01, and many investors thought it would never recover.
Other newer cryptocurrencies do not have this long-term track record. While past performance is no guarantee of future performance, it is very likely that if the cryptocurrency market recovers, Bitcoin will lead the way.
The next big catalyst
Finally, Bitcoin has a clear catalyst coming that could drive the market higher in 2023. Known as a halving, this event occurs every four years, like clockwork, due to the algorithmic nature of Bitcoin.
In a halving event, the reward for Bitcoin miners who successfully mine a new block of Bitcoin is halved. The net impact is that the growth of Bitcoin supply slows down over time. At the same time, Bitcoin becomes more valuable in the eyes of potential buyers due to its perceived scarcity.
The best thing about the halving is that we know exactly when it will happen (March 2024) and we also have a history of how Bitcoin has performed in the past after similar halving events in 2012, 2016 and 2020. The general pattern of these halvings is the following: Bitcoin bottoms about 15 months before the next halving, gradually increases in price for the next 15 months, and then explodes as soon as the halving occurs.
Based on this past history, some sophisticated hedge funds have built models showing what could happen to Bitcoin in 2023 and 2024. The next halving will happen in about 15 months, so it is likely that Bitcoin has already bottomed out and is ready for a gradual recovery towards the beginning of 2024.
Based on this model, California-based cryptocurrency hedge fund Pantera Capital suggests that Bitcoin could soar as high as $36.000 before 2024, then take off and reach $149.000 after the halving.
Risk and reward
In my view, Bitcoin represents the best of both worlds when it comes to risk-reward. It has arguably the lowest risk profile of any major cryptocurrency, but it also has incredibly high upside potential. Furthermore, Bitcoin has a clear catalyst and a solid track record of recovering from previous market crashes.
Again, past performance is no guarantee of future performance. As many cryptocurrency traders like to point out, Bitcoin could lose half its value or double in price.
As far as I'm concerned, I think the second scenario is more likely. When you think about Bitcoin's overall risk-reward ratio, it's hard not to be optimistic about its long-term fortunes. The right time to buy is now, in December, so that you can participate in the majority of the upside potential ahead.