Bitcoin, the world's largest cryptocurrency by market capitalization, saw its price surge 1.96% over the past 24 hours to $26,115.47. This positive price movement comes after a period of lackluster performance for the digital asset, with Bitcoin down over 11% in the past month.
The recent 24-hour gain has pushed Bitcoin's market capitalization back above $500 billion, currently standing at $508.49 billion. Trading volume over the past day totaled $12.20 billion, suggesting reasonable interest in Bitcoin at current price levels.
Short-term momentum indicators paint a mixed picture for Bitcoin. Over the past hour, the cryptocurrency has edged 0.08% lower. However, zooming out shows improving momentum, with Bitcoin up 1.30% over the past week.
Longer-term trends remain negative, but some analysts believe Bitcoin may be carving out an intermediate bottom after sliding over 50% from its all-time high of around $69,000 in November 2021. The recent bounce off lows around $17,500 will need to be confirmed by further upside follow-through.
What's Behind the Recent Strength?
Bitcoin's price rose steadily through 2021, but sentiment shifted dramatically in 2022 amid a broader risk-off environment. Tighter central bank monetary policy, spiking inflation, and recession fears weighed on speculative assets like cryptocurrencies.
However, recent data indicates inflation may be peaking in major economies like the United States. This has fueled hopes that the Federal Reserve can moderate its interest rate hiking cycle, which would be supportive of Bitcoin and other digital asset prices.
The cryptocurrency industry has also seen positive fundamental developments recently. The long-awaited Ethereum network upgrade known as the Merge was completed in September, transitioning Ethereum from an energy-intensive proof-of-work consensus mechanism to a more efficient proof-of-stake approach.
This is viewed as a major milestone for the blockchain industry and has boosted sentiment across cryptocurrencies. While Ethereum is not directly related to Bitcoin, improvements in the broader digital asset ecosystem tend to lift Bitcoin as well.
What's the Outlook for the Rest of 2023?
It remains to be seen whether Bitcoin can build on its recent gains or if the bounce will be short-lived. From a technical perspective, Bitcoin appears to have found support around the $17,500 level and will need to break back above its 200-day moving average around $28,500 to confirm an uptrend.
Fundamentally, much depends on the path of inflation and central bank policy. If we have indeed seen "peak inflation" then the Fed may slow its pace of rate hikes, which would be a tailwind for risk assets. However, the economic backdrop remains uncertain.
My view is that macroeconomic conditions will gradually improve through 2023. Assuming inflation continues to moderate and no severe recession materializes, I expect Bitcoin to recover back toward the $40,000 - $50,000 range by mid-2023.
Upside potential beyond that level depends on reigniting the bullish narrative around Bitcoin as "digital gold" and regaining favor with institutional investors. But with so much bad news priced in already, I think Bitcoin is primed for a cyclical recovery rally over the next 6-12 months.
Should You Buy Bitcoin Now?
For traders and investors wondering if now is a good time to buy Bitcoin, there are arguments on both sides. The recent bounce off lows signals Bitcoin may have bottomed, and systematic buyers tend to enter around current price levels.
However, there are still macroeconomic risks present. Bitcoin remains vulnerable to volatility and it may retest its lows if recessionary fears resurface. Those with a higher risk tolerance could consider nibbling on positions at current levels, but more conservative investors may want to wait for a definitive breakout above resistance.
Dollar-cost averaging can help mitigate timing risks. For long-term cryptocurrency believers, gradually accumulating Bitcoin on weakness can provide exposure to upside potential while minimizing the impact of volatility. But investing in cryptocurrencies should only be done as part of a diversified portfolio.
Is Bitcoin Still a Good Long-Term Investment?
Despite its sharp drawdown, Bitcoin's long-term investment case still has merit in my view. Only 21 million Bitcoin can ever exist, giving it a provably scarce supply. Network adoption and activity metrics like hash rate continue rising, underscoring its staying power.
Blockchain-based digital assets appear poised to play a growing role in the global financial system. While cyclical bear markets shake out speculators, Bitcoin has endured several boom-and-bust cycles already.
For patient investors with high risk tolerance, Bitcoin provides asymmetric upside potential and a way to diversify from fiat currency regime risks. This year's weakness should not obscure Bitcoin's potential as a revolutionary monetary asset over the next decade and beyond.