Bitcoin and 2023: More restrictions or increased adoption?

Highlights

• Blockchain-based Bitcoin enables a permissionless and public network where any participant can have a say
• Bitcoin’s price in 2022 was negatively impacted by events such as the crash of the TerraUSD stablecoin and the FTX exchange
• In 2023, sentiments would be shaped by things like any big economy imposing restrictions on the trading of cryptocurrencies

Bitcoin -- arguably the king of the cryptocurrency world -- did not have a good run in the year 2022. Not only did the first-ever cryptocurrency and the world’s biggest by market cap lose value but it also came under pressure due to the sudden fall of names like FTX. Bitcoin is often termed the bellwether of the cryptoverse as its price movement also impacts other assets like Ether and Dogecoin. In 2022, virtually all these assets have had a bad run.

Would the picture change in the upcoming year? Bitcoin price prediction is perhaps impossible considering the absence of fundamentals that can be assessed to make any meaningful forecast. In 2021 end, many predicted that the cryptocurrency might cross the US$100,000 level next year, but what actually happened was in stark contrast. And hence, speaking anything about the price performance of Bitcoin in 2023 could be very speculative and superficial. Instead, let us explore aspects that might have an influence on Bitcoin’s price next year.

More restrictions or adoption?

In all advanced economies, including Australia, Bitcoin is not legal tender or a widely accepted form of payment. That said, most countries have not yet imposed any punitive restriction on cryptocurrencies’ use as a speculative asset. El Salvador, the first country to announce Bitcoin’s use as legal money, has so far failed to produce any outcomes that inspire others to follow suit. On the other hand, the fall of companies like FTX and Celsius has forced authorities in many countries to rethink their stance on Bitcoin’s trading as it is extremely risky and prone to heavy losses.

Would authorities like the Fed and the U.S. Securities and Exchange Commission , and the Reserve Bank of Australia and the Australian Securities and Investment Commission (ASIC) -- put some restrictions on the trading of cryptocurrencies in their respective countries to safeguard the interests of investors? If that happens, Bitcoin and altcoins might continue to remain under pressure even in 2023. By contrast, if a greater number of countries, including any big economy, decide to adopt Bitcoin as legal tender, it might add some substance to the cryptocurrency next year.

Blockchain’s future

Bitcoin uses decentralised blockchain tech, often criticised for lacking a central authority that can instill trust in the system. Ethereum’s blockchain has a permissioned version, which allows at least some degree of control over the network. This permissioned and private network is being used by the RBA for its pilot central bank digital currency (CBDC) project. Bitcoin does not have a permissioned network, so if permissioned chains find more adoption in the conventional world, it might not be good news for Bitcoin.

Data provided by CoinMarketCap.com

Viewpoint

Bitcoin might witness a big turning point in the future, and 2023 could be the beginning. This turning point could be in the form of either more restrictions and crackdowns in different countries due to Bitcoin’s price volatility, or adoption as legal tender by some of them, or both. Both forces would have an opposite impact on the sentiments of Bitcoin enthusiasts. Separately, regulators of many countries, including the US, are also contemplating how to regulate cryptoassets and have proper laws around them.

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