Author: Koala Finance
What is the real reason for the rise of Bitcoin in 2023?
If we ask which asset is the most noteworthy this year, the answer is undoubtedly Bitcoin. Its price has risen from around $19,000 at the beginning of the year to around $45,000 at the end of the year, an increase of more than 136%. Generally speaking, there are only a few reasons for the rise of Bitcoin, such as the Fed's interest rate cuts to stimulate a positive macro environment and the halving of Bitcoin block rewards, but this time may be different, because Bitcoin's "characteristics" seem to be changing, from simply attracting investors' value storage to gradually shifting to the application layer. This article will conduct an in-depth analysis and interpretation.
Inscriptions "stimulate" the explosion of Bitcoin ecological use cases
The most popular cryptocurrency in the Bitcoin ecosystem recently is undoubtedly "ORDI". In recent days, as the price of Bitcoin has broken through $44,000, the price of ORDI has risen surprisingly. However, with the rise of ORDI, people have seen for the first time that Bitcoin is not only able to play the role of value storage, but also has more practical use cases.
According to the latest data from Dune Analytics, the current minting volume of Ordinals has reached nearly 50 million, and the fee income has exceeded 3,600 BTC, equivalent to approximately US$155 million.
In fact, the ORDI craze not only promotes the development of the inscription track, but may even promote the development of the second-layer network of the Bitcoin blockchain. Users create off-chain transaction channels in the second-layer network execution layer and process transactions through off-chain computing methods, thereby improving scalability and throughput while reducing transaction costs.
We know that at this stage, the Inscription Protocol uses the Bitcoin layer network to mint NFTs, allowing users to embed data into the Bitcoin blockchain, and includes Ordinals (a numbering mechanism for Satoshis) and Inscriptions (Satoshis engraved with arbitrary content). In essence, it creates non-fungible tokens (NFTs) native to Bitcoin. Although this will increase the transaction volume of the Bitcoin network, it may also bring a certain burden to the Bitcoin network. To solve these problems, a second-layer network built on the Bitcoin main blockchain may emerge.
In the current market context of the rapid rise of the "early bull", the inscription craze has driven more people to pay attention to the construction of the Bitcoin ecosystem, promoted more possibilities for the construction of the Bitcoin ecosystem, brought new vitality to the Bitcoin ecosystem, and promoted the further development of the Bitcoin ecosystem. If a more innovative and attractive Layer 2 or other new forms of narrative can be launched, it will undoubtedly be beneficial to the entire crypto industry.
The increase in ecological use cases has not reduced Bitcoin’s “value storage” attribute
Bitcoin has been regarded as a value storage asset since its birth, and its scarcity and immutability are the basis of its value. In 2023, the global economy is facing risks such as inflation and geopolitical conflicts. Investors' confidence in traditional financial assets has declined, and they have turned their attention to digital assets such as Bitcoin.
In fact, Bitcoin is not only a value storage asset, but also has a variety of ecological use cases. In 2023, the application of Bitcoin in payment, finance, insurance and other fields has been further expanded. In the field of payment, more and more merchants have begun to accept Bitcoin payments. According to statistics, there are currently more than 1 million merchants accepting Bitcoin payments worldwide. In the financial field, the Bitcoin derivatives market has also developed rapidly. By the end of 2023, the scale of the Bitcoin derivatives market has exceeded 1 trillion US dollars. In addition, in the insurance field, Bitcoin insurance has also begun to receive more and more attention.
It is no exaggeration to say that the expansion of ecological use cases has not reduced Bitcoin's "value storage" attribute, but has provided support for Bitcoin's price. As Bitcoin is used in more fields, its demand will increase further.
Entry of institutional investors
In recent years, more and more institutional investors have begun to invest in digital assets such as Bitcoin. Some analysts pointed out that this year, the total investment of global institutional investors in digital assets such as Bitcoin has exceeded 100 billion US dollars. The entry of institutional investors has injected new vitality into the Bitcoin market and also increased the price of Bitcoin. As the value attributes of Bitcoin continue to increase and its status in the global financial system further improves, the price will also maintain a relatively stable growth trend. Institutional investors choose to enter the market at this point in time for the following reasons:
Institutional investors have a deeper understanding of the value attributes of Bitcoin.
Institutional investors hope to diversify their risks by investing in Bitcoin.
Institutional investors hope to obtain higher returns by investing in Bitcoin and Bitcoin ETFs.
As of now, many global asset management giants have submitted applications for spot Bitcoin ETFs to the U.S. Securities and Exchange Commission, including BlackRock, Fidelity and Invesco, Bitwise, Grayscale, Valkyrie, etc. This move is bound to set a precedent for future financial products related to crypto assets. Once approved by regulators, it will be seen as a step towards the wider application of Bitcoin and a major innovation in the mainstream financial market.
The traditional securities market has a mature trading system and infrastructure, which can provide a more efficient trading environment for Bitcoin. In addition, the trading price of the spot Bitcoin ETF will be more transparent, which will help investors better understand the price trend of Bitcoin. With the deadline for the U.S. Securities and Exchange Commission to open applications for spot BTC ETFs in January 2024 approaching, these positive factors further drove the price of Bitcoin higher at the end of the year.
Summarize
It can be said that the expansion of ecological use cases provides support for the rise of Bitcoin, the value storage attribute is an important factor in the rise of Bitcoin, and the entry of institutional investors is the biggest driving force for the rise of Bitcoin in 2023.
Of course, there are some uncertainties in the rise of Bitcoin in 2023. For example, if the global economic situation deteriorates further, investors' demand for Bitcoin may decline; if regulators tighten their supervision of cryptocurrencies, it may also have a negative impact on the Bitcoin market.
But overall, the market is moving in a bright direction.
