In this guide
Important information
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.
The price of bitcoin is closing in on the $40,000 mark again, having risen 130% in 2023 so far, after dropping below $20,000 in June 2022 from a peak of $64,400 in November 2021.
Be mindful, past performance is not an indicator of future performance.
The original crypto had a torrid 2022 along with the rest of the market as the rate rising cycle saw appetite for high-risk assets collapse. Matters were not helped by crypto-specific scandals such as the demise of the FTX exchange and Three Arrows crypto hedge fund.
Interest rates could fall
One key reason behind bitcoin’s recent performance is likely to be that analysts expect the United States’ Federal Reserve to stop raising interest rates – and possibly begin lowering them – at some point in 2023. This is due to the economy stabilising after a turbulent period.
The Federal Reserve has increased interest rates nine times in a row in order to tackle rising inflation. This has made it more expensive to borrow money. It also lowered appetite for investment risk, as potential greater returns can be made from safer government assets.
Many investors may once again turn to the stock and cryptocurrency markets if interest rates come down.
Bitcoin is set to ‘halve’ in 2024
Bitcoin works by rewarding ‘miners’, who power the blockchain’s public ledger by verifying transactions using powerful computing hardware. The more verifications that a miner carries out, the greater the chance that they will receive a sum of bitcoin as a reward.
The number of bitcoin that will ever exist is fixed at 21 million. The amount that is paid to miners is halved every four years. This is next expected to occur in April 2024. This means that over time, the amount of bitcoin entering circulation falls, and the asset becomes increasingly scarce.
This can have the effect of pushing up the currency’s price. It may be already doing so due to investor speculation.
Find out more about how cryptocurrency works.
It’s worth noting that bitcoin is an incredibly high-risk and volatile asset, and that the price of cryptocurrency is based purely on speculation.
If investors are considering taking the risk and purchasing cryptocurrency, they should make sure to understand what they are investing in, have a crypto investment strategy and obtain appropriate financial advice. They should only invest what they are prepared to lose.
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