While 2022 was a bad year for cryptocurrencies, with Bitcoin losing 65% of its maximum quotation, things are looking up in 2023. To date, Bitcoin is up 36% and bullish proponents are hoping this is a microcosm of what lies ahead over the next 12 months.
Also, one feature could take this cryptocurrency to new heights in 2023. Let's take a closer look.
Develop speed and scalability
From the first verified transaction in January of 2009 to the present, Bitcoin has mostly only been used as a store of value. Bitcoin's defining feature, that only 21 million coins will be created, has many believe that as demand increases, the fixed supply translates into a higher price. The comparison you've probably heard most often is that Bitcoin is a digital version of gold, a new way to store wealth in a world that is becoming increasingly digital.
Furthermore, Bitcoin was created with non-tradable decentralization and security features. Not only are there thousands of miners around the world helping verify new transactions on the blockchain, but Bitcoin's proof-of-work consensus mechanism makes it nearly impossible to attack the network. This is a great setup.
However, Bitcoin's lack of scalability is a problem, as it can only process 3,5 transactions per second. For Bitcoin to evolve from a store of value to a medium of exchange, it must become faster at settling transactions.
Fortunately, a layer 2 solution, known as the lightning network, is under construction. The lightning network is built on top of the main Bitcoin blockchain and essentially creates conduits between different parties who want to transact frequently with each other.
The benefit of lightning is that it reduces the data load on the primary Bitcoin blockchain, as transactions are settled much less frequently. Lightning solves the problem of speed, scalability and cost.
In 2023, all news related to the development and adoption of the Lightning Network will have to be closely monitored, as the progress of this key function could catapult the price of Bitcoin in a short time.
Macro factors matter
The price of Bitcoin has already risen rapidly in the past. It recorded a 1.300% increase in 2017, 85% in 2019, 309% in 2020 and 1.120% in 2021, so a surge in 2023 cannot be entirely ruled out. With the price of Bitcoin rapidly Ascent this year, hodlers certainly hope the momentum continues for the foreseeable future.
However, it is difficult to overstate the importance of macroeconomic factors to the price action of risky assets, a category to which Bitcoin firmly belongs. The Federal Reserve began adopting a monetary tightening policy in March of last year, with the aim of curbing the soaring inflation that has hit the economy. We immediately saw a crash in growth tech stocks and cryptocurrencies.
An accommodative central bank, a growing economy and positive investor sentiment are key ingredients for Bitcoin to continue its ascent this year. While the progress of the Lightning Network is certainly one to watch, at least for now, the price of Bitcoin depends entirely on investor enthusiasm in the near term. And what are your predictions for 2023? Are you skeptical or in favor of a comeback? Let us know in the comments below!