Interpreting the three main reasons for the rise of Bitcoin in 2023

Deciphering the Top Three Factors Behind Bitcoin's Surge in 2023

What is the real reason for the rise of Bitcoin in 2023?

If we were to say which asset is worth paying attention to this year, the answer is undoubtedly Bitcoin. Keep in mind that its price has risen from around $19,000 at the beginning of the year to around $45,000 at the end of the year, a increase of over 136%. Typically, the rise of Bitcoin is due to a few reasons, such as the Federal Reserve’s interest rate cuts stimulating the macro environment, and the halving of Bitcoin block rewards. However, this time may be different because Bitcoin’s “characteristics” appear to be changing. It is gradually shifting from being a pure store of value that attracts investors to the application layer. Koala Financial will conduct a deep analysis and interpretation in this article.

The inscription “stimulates” a major outbreak of Bitcoin use cases

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Recently, the most attention-grabbing aspect of Bitcoin’s ecosystem is “ORDI.” In the past few days, as the price of Bitcoin has surpassed $44,000, the surprising rise of ORDI’s price has caught people’s attention. But with the rise of ORDI, people are seeing for the first time that Bitcoin can play a role beyond just being a store of value; it has more practical use cases.

According to the latest data from Dune Analytics, the current amount of Ordinals inscription minting has reached nearly 50 million, and the fee revenue has exceeded 3,600 BTC, equivalent to $155 million.

In fact, this wave of ORDI frenzy not only purely promotes the development of the inscription track, but it may also promote the development of the Bitcoin blockchain layer 2 network. Users can create off-chain transaction channels on the layer 2 network, and process transactions through off-chain computing methods. This can improve scalability and throughput while reducing transaction costs.

As we know, the inscription protocol currently uses the Bitcoin layer 1 network to mint NFTs, allowing users to embed data into the Bitcoin blockchain. This includes Ordinals (a numbering mechanism for Satoshis) and Inscriptions (which can be engraved with any content). Essentially, it creates native non-fungible tokens (NFTs) on the Bitcoin network. Although this may increase the transaction volume of the Bitcoin network, it may also burden the Bitcoin network. To address these issues, layer 2 networks based on the Bitcoin main blockchain may emerge.

In the current market context where the “first bull” is rising rapidly, the inscription frenzy has drawn more attention to Bitcoin’s ecosystem construction. It has driven the possibility of constructing more Bitcoin ecosystems and brought new vitality to the Bitcoin ecosystem, promoting its further development. Introducing more innovative and attractive Layer 2 or other new forms of narrative undoubtedly benefits the entire crypto industry.

The increase in use cases has not diminished Bitcoin’s “store of value” attributes

Bitcoin has been seen as a store of value asset since its inception, with its scarcity and immutability serving as its foundation of value. In 2023, the global economy is facing risks such as inflation and geopolitical conflicts, causing investors to lose confidence in traditional financial assets and instead shift their focus to digital assets like Bitcoin.

In fact, Bitcoin is not only a store of value asset, but also has multiple ecological use cases. In 2023, the application of Bitcoin in payment, finance, insurance, and other fields has been further expanded. In the payment field, more and more merchants are starting to accept Bitcoin payments. According to statistics, there are currently over 1 million merchants worldwide accepting Bitcoin payments. In the financial field, the Bitcoin derivatives market has also experienced rapid development. By the end of 2023, the scale of the Bitcoin derivatives market has exceeded 1 trillion dollars. Additionally, in the insurance field, Bitcoin insurance has also begun to receive increasing attention.

It is not an exaggeration to say that the expansion of ecological use cases has not diminished the “store of value” attribute of Bitcoin, but instead provided support for the price of Bitcoin. With the application of Bitcoin in more fields, its demand will further increase.

The entry of institutional investors

In recent years, more and more institutional investors have started to invest in Bitcoin and other digital assets. Some analyses indicate that the total investment by global institutional investors in Bitcoin and other digital assets has exceeded $100 billion this year. The entry of institutional investors has injected new vitality into the Bitcoin market and also boosted the price of Bitcoin. As the value attributes of Bitcoin continue to improve, as well as its further enhancement in the global financial system, the price will maintain a relatively stable growth trend. There are several main reasons why institutional investors choose to enter the market at this time:

• Institutional investors have a deeper understanding of the value attributes of Bitcoin.

• Institutional investors hope to diversify their risks through investing in Bitcoin.

• Institutional investors hope to achieve higher returns through investing in Bitcoin and Bitcoin ETFs.

So far, several global asset management giants, including BlackRock, Fidelity, Invesco, Bitwise, Grayscale, Valkyrie, etc., have submitted applications for spot Bitcoin ETFs to the U.S. Securities and Exchange Commission. This move is expected to set a precedent for future financial products related to cryptocurrencies and will be considered a significant innovation in the mainstream financial market once approved by regulators.

Traditional securities trading markets have mature trading systems and infrastructure, which can provide a more efficient trading environment for Bitcoin. In addition, the trading price of spot Bitcoin ETFs will be more transparent, which will help investors better understand the price trend of Bitcoin. As the final deadline for the opening of applications for spot BTC ETFs by the U.S. Securities and Exchange Commission approaches in January 2024, these favorable factors further drive up the price of Bitcoin at the end of the year.

Summary

It can be said that the expansion of ecological use cases provides support for the rise of Bitcoin, and the store of value attribute is an important factor in the rise of Bitcoin, while the entry of institutional investors is the biggest driving force behind the rise of Bitcoin in 2023.

Of course, there are some uncertainties in the Bitcoin market’s upward trend in 2023. For example, if the global economic situation deteriorates further, investors’ demand for Bitcoin may decrease. Additionally, if regulatory authorities tighten their supervision of cryptocurrencies, it may have a negative impact on the Bitcoin market.

However, overall, the market is heading in a positive direction.

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