Bitcoin’s journey from being a virtually unknown digital asset to the most valuable crypto coin by market capitalisation has been nothing short of spectacular. It all started in 2009, with the release of the Bitcoin white paper by the pseudonymous Satoshi Nakamoto. Back then, BTC was valued at less than a cent, a far cry from the heights it would later achieve.

The early years of bitcoin were marked by steady growth, punctuated by periods of rapid price appreciation, known as ‘bull runs’. However, there were also periods of uncertainty, as Sciberras points out. “During 2014-17 we saw many Bitcoin ‘forks’ proposed that split the bitcoin community.” Hard forks are changes to the underlying ‘rules of the game’.

These forks represented crucial junctures in bitcoin’s history, with various factions in the community attempting to change Bitcoin’s direction. Despite contentious debates, bitcoin has persisted in its current format. As Sciberras explains: “Bitcoin surviving these attempts to change it is a core contributor to where BTC is now, increasing its confidence and resilience. It has weathered many storms and attempts to change it, with Bitcoin forks now a distant memory, combining for less than 1% of bitcoin’s total market cap.”

One of the biggest bulls, Cathie Wood of Ark Invest, believes Bitcoin is heading not just to $1 million but to $1.48 million by 2030

Another defining feature of Bitcoin’s price history is the halving event, which happens roughly every four years. The rate at which new bitcoins are created is halved during this event. “Bitcoin’s halving is perhaps the most important thing that drastically impacts price. The halving happens roughly every four years, reducing the rate at which new coins are created. We’ve seen bitcoin’s price significantly increase a year before the halving and a year after. The bitcoin market cycle lives on and is a core driver of price action,” Sciberras says.

Indeed, the halving has historically been a catalyst for significant price appreciation, with each cycle bringing bitcoin to new all-time highs.

In June, BlackRock, the world’s largest asset manager with over $9 trillion worth of assets under management, filed to start an exchange traded fund (ETF) specifically for BTC. Multiple other institutions also followed suit, with WisdomTree, ARK Invest and others also filing their first application or updating existing applications shortly after BlackRock’s announcement.

While there is yet to be a spot BTC ETF approved by the US Securities and Exchange Commission (SEC), these applications are a major step forward in legitimising crypto assets in the eyes of other institutions and regulators globally.

 These historical events provide valuable context for understanding bitcoin’s potential trajectory as we look to the future.

Bitcoin’s performance in 2023 depends on a variety of bullish and bearish factors. Numerous elements, such as institutional adoption, regulatory changes, technical advancements, macroeconomic trends, and more, influence the intricate dynamics of the bitcoin market.

Among the bearish factors, we have notable events involving significant quantities of bitcoin that could enter the market at any time. Sciberras notes: “Mt Gox creditors will finally receive their stolen bitcoin this year after nearly 10 years (roughly 138,000 BTC, equalling around $US3 billion). More sell pressure could come from the US government. It has started to sell bitcoins seized in March, with (roughly) $US1.2 billion worth of Bitcoins still to sell.”

These events could lead to an influx of Bitcoin in the market, potentially putting downward pressure on the price if the demand doesn’t match the sudden increase in supply.

There remain some areas of weakness in the crypto industry that could still lead to further catastrophes, as was seen in 2022. One major item of contention is the current civil enforcement action that has been filed against CZ and crypto exchange Binance by the US Commodity Futures Trading Commission (CFTC). “We must also acknowledge the possible risks in the broader crypto market. There are still potential downside catalysts if Binance and it’s CEO is charged or if the flush-out of crypto companies or collapses is not yet over,” says Sciberras. 

On the bullish side, Sciberras points out a potential catalyst for Bitcoin’s price rise: the return of bitcoin payments by Tesla. As he puts it, “CEO Elon Musk said he would bring back BTC payments once bitcoin hits 50% renewable energy sources. It could spark some positive price action.” Given Musk’s influence and Tesla’s standing in the market, such a move could indeed drive a new wave of interest and adoption, possibly pushing bitcoin’s price upwards.

A halt in rising interest rates, and a subsequent return to lower interest rate levels, would also be a significant bullish catalyst for BTC. Cryptocurrencies like Bitcoin could offer an attractive place for investors to park capital in this situation due to its perceived hedge against traditional financial systems and increasing scarcity as the halving approaches in 2024.

The interest from institutions, like BlackRock, in starting a BTC ETF is also a huge potential catalyst for Bitcoin if one were to get approved. There is now almost 10 applications pending with the SEC, and they are permitted only a limited amount of time before a decision is made. 

That deadline is approaching for several applications, so investors should keep an eye out for any news.

Sciberras paints a compelling bullish picture for Bitcoin.

“There are serious issues in the global economy, with the US facing a banking crisis and growing debt obligations,” he notes.

“If the US chooses to fix this by issuing more currency and expanding the money supply, we could be in a situation where the USD is devalued. In this scenario, Bitcoin’s role as a known, fair and resilient asset with a fixed supply where the “rules of the game” are not easily changed, could become attractive.”

He further highlights the increased demand for block space on Bitcoin’s network due to recent innovations such as ordinals and BRC 20 tokens. The higher demand, utility, and fees for miners could help alleviate concerns over bitcoin’s long-term security budget. Just recently, in May 2023, a Bitcoin block, in which miner revenue from transaction fees exceeded the block subsidy was mined for the first time since December 2017.

The future could also see Bitcoin becoming more of a payment method, with increased lightning network development from Strike, Lightspark, MicroStrategy, and Spiral. “If Bitcoin can continue making processes and adoption in the payment front, it could increase its overall utility and become more ‘money’ like—helping it reach those lofty price targets,” Sciberras states.

Moreover, he points out bitcoin’s increasing adoption as an alternative asset in traditional finance, with major institutions’ growing acceptance of bitcoin. He adds: “None can be more endorsing than the oldest bank in America (BNY Mellon) rolling out its Digital Asset Custody Platform, saying Bitcoin is “here to stay”. He also mentions potential regulatory clarity as a boost for bitcoin’s future.

The world’s largest asset managers’ interest is undoubtedly a bullish sign for BTC. Larry Fink, the CEO of BlackRock, called Bitcoin “digital gold” in a recent interview. This interest is almost like a stamp of approval, which could, in and of itself, lead to a massive inflow of investors into the digital asset market.

However, every investment has potential downsides, and Bitcoin is no exception. Sciberras outlines a few scenarios that could potentially depress Bitcoin’s price.

“There are concerns over Bitcoin’s long-term security, given the block reward will continue to decrease, possibly threatening security,” he cautions. Additionally, short-term sell pressure could also negatively impact Bitcoin’s price.

Environmental and political impacts are another concern. Sciberras states: “There are continued attacks on bitcoin’s environmental impacts, with the White House proposing a tax of up to 30% on Bitcoin miners in the US.” Similarly, if Bitcoin continues to be criticised due to its energy consumption, it could threaten its price action.

If the SEC decides to deny all current applications for a BTC ETF, it could also lead to a sell-off in the short term, as many investors may view this as a sign that an ETF will never be approved for bitcoin.

Finally, a swing in sentiment against bitcoin and cryptocurrency by governments could decrease prices. “The US is becoming incredibly hostile towards cryptocurrency and Bitcoin,” Sciberras says.

“If this continues, it could decrease crypto prices.” Additionally, if bitcoin threatens countries’ monopoly on money due to widespread adoption, governments could move to restrict it.

While the future of Bitcoin is anything but certain, it’s clear that a variety of factors could significantly influence its trajectory. Both the bullish and bearish scenarios have their merits and potential pitfalls, and only time will tell which prevails.

Investing in bitcoin comes with its share of rewards and risks, and understanding these is key to making an informed decision. As Sciberras puts it: “Investing in bitcoin isn’t a straightforward ‘yes’ or ‘no’. It depends on many factors, including the global economic climate, regulatory landscape, technological developments and your own personal situation.”

In scenarios where there is large-scale “money printing” or loosening of monetary policy by the US and other nations, Bitcoin could fare well. Sciberras explains: “Bitcoin was created as an alternative to the current system during the 2008 GFC. If we return to these conditions, bitcoin could perform well in such an environment.”

Bitcoin’s halving, a preprogrammed event that decreases the reward for mining new blocks, could potentially drive prices higher, as it has done in previous cycles. With the next halving fast approaching in April 2024, there is a significant catalyst for positive price action which investors should be aware of. “If Bitcoin follows a similar trend to past market cycles, the upcoming halving could drive prices higher as the market adjusts to the new decreased block reward,” says Sciberras. 

The continued development of scalability solutions such as the lightning network could also boost Bitcoin’s value. Sciberras believes that “if we see businesses creating Lightning Network or Bitcoin-focused products, we could see an expansion of its use as payment, increasing adoption and possibly price.”

The approval of one of the current pending BTC ETF applications from the likes of BlackRock, ARK or WisdomTree could lead to immediate, significant for Bitcoin as investors would see this as a green light from regulators. An approved ETF would also make it significantly easier for investors to gain access to Bitcoin, likely leading to significant inflows from investors who were previously unable to buy.

However, Bitcoin’s future isn’t without potential hurdles. “If Bitcoin continues to be (targeted) by governments and its energy consumption is further politicised, then it could put pressure on bitcoin’s long-term sustainability,” warns Sciberras.

One of the significant long-term concerns for bitcoin is its security in the face of a decreasing block reward. “If there is lacklustre adoption and demand for Bitcoin or fee revenue is inadequate to incentivise miners to upgrade their hardware and mine new (less) Bitcoins, security could decrease and threaten the network.” While this is unlikely to be an issue in the next decade, it does remain an unanswered question for Bitcoin’s future in the long term.”

Sciberras reminds us of an often overlooked possibility: “Bitcoin can go to zero, just like any innovation surpassed by a newer incumbent or a combination of the above, reducing trust, accessibility, or demand for bitcoin.”

While Bitcoin holds considerable potential, it also comes with significant risks. Investors should carefully consider their risk tolerance and investment goals before diving into the world of Bitcoin. As with all investments, it’s wise to do your own research and, if possible, consult with a financial advisor.

This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class.  Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.