Learn: Beyond the Crash and Embracing NFTs?
It's likely that Bitcoin is now past its cycle low and moving on from a uniquely chaotic year.
After a year of doom and gloom, the final, trainwreck quarter of which surely drove the last of the crypto tourists to beat an incredulous retreat, January 2023 ushered in an abrupt reversal. This change of atmosphere was stirred by an exceptionally strong performance from Bitcoin, which recovered almost 40% in price through the opening month and was hailed by Goldman Sachs as the strongest performing asset of the year so far.
That’s welcome news, but there are still eleven months of 2023 to cautiously traverse, so here at the start of month two, is it time to assuredly declare that the worst is truly behind us, and we are in a distinct new section of the Bitcoin journey?
Crypto has a habit of pulling out the rug from underneath those who make the boldest short-term assertions, so there’s understandable trepidation among even (or especially) the most seasoned of forecasters, but still, it’s fair to observe that indications lean towards the bear market bottom receding in the rearview mirror.
The first thing to note is that we are now approaching fifteen months since Bitcoin’s all-time high of just below $70,000, registered in November 2021. For comparison, in the cycle before this one, Bitcoin hit an all-time high in December 2017, and a bear market low twelve months later.
If current cycles play out according to the same pattern, then the low should have come last November, and as it happens, BTC did indeed plummet to its lowest point of the year, around $15,500, at precisely that time.
The timing feels almost too impeccable, which can make one wonder if there aren’t further shocks in store, except that, as we’re now approaching another three months past that low and heading towards the next Bitcoin halving in 2024, it would be strangely late to revisit a deeper low at this point.
Add to this the fact that in 2022, Bitcoin dipped below the high from its previous cycle, which had been just below $20,000 in 2017. This breach of the high in 2017 was not widely expected to happen, and when Bitcoin crashed below that level it should have acted as a hint that the market was acting erratically, and that BTC was oversold.
Even as this was unfolding, though, there was further speculation that the price would go lower, perhaps dropping to $12,000. These predictions echoed, in reverse, some of the voices that had insisted BTC was headed for $100,000 even as it was hitting the top of its 2021 bull run.
Bitcoin plumbed those 2022 sub-20K depths at the dramatic, disastrous climax of an already brutal year. First, we had Terra/Luna unraveling, leading to the demise of Celsius and Three Arrows Capital, but, seismic though those collapses were, they almost paled in comparison to the implosion, towards the end of the year, of FTX.
To people outside of and not paying attention to crypto, all the damage that had occurred in 2022 prior to FTX's downfall may have registered just barely at the edge of the radar, but when FTX went down, it intruded forcefully into the mainstream news cycle, which gives an indication of the level of destruction that was unfolding.
It was this headline-grabbing FTX-centered disaster that took Bitcoin’s 2022 bear market low, unexpectedly, to below those previous 2017 highs. As such, it’s difficult to imagine, in a new year and with the crypto world moving on, that a similar low is likely to be approached again.
Looking back, 2022 appears to have been a perfect storm for Bitcoin and crypto as they not only struggled with protocol and platform collapses but did so against a backdrop of monetary tightening, the ongoing fallout from global Covid policies, and the war on the eastern edge of Europe.
With all this in mind, on a zoomed-out monthly chart, it starts to look like Bitcoin navigated, right at the end of the year, a cyclical swing low suggesting that momentum may now be lifting it into a new phase.
Curiously, Bitcoin’s resurgence has coincided with an outburst of tetchy disagreement in what we might loosely call the Bitcoin community. It’s the kind of controversy that erupts at the fringes but could, potentially, become a point of wider importance, and it revolves around the emergence of NFTs (or something very similar) on the Bitcoin blockchain.
Bitcoin is intended to function as money, meaning that its units, satoshis (there are 100 million satoshis in a bitcoin), are fungible. However, through an unforeseen creative use of Bitcoin’s Taproot upgrade, it’s possible to convert individual satoshis into non-fungible artifacts containing media, such as images, that are stored directly and permanently on the chain.
These NFT-like objects are known as Inscriptions, and they use a protocol called Ordinals. Purists insist that this is a wasteful misuse of the network, taking up limited block space. Proponents, on the other hand, state that Inscriptions generate transaction fees for miners, and that Bitcoin is, by its nature, open to limitless experimentation.
From a wider point of view, NFTs are an area of crypto that drive considerable interest, and while this current debate is specialized and might seem niche, it’s plausible that early experiments with Ordinals can develop into a significant branching off from Bitcoin’s original purpose.
Either way, it’s happening while the crypto markets are experiencing a refreshing break from the overcast weather of the year just gone and adds to the sense that for Bitcoin and crypto, the possibility of more optimistically interesting times appears viable again.