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After what felt like an interminable crypto winter that sowed discontent and despair among traders and investors, it seems like the crypto gods have smiled upon the crypto community in 2023, bringing back hope and optimism in the market. Bitcoin, the unbeatable ruler of the novel and highly controversial asset class which it founded has seen a remarkable resurgence that many thought impossible to achieve in the wake of the last bear market.
The flagships crypto has done what it does best: prove its strength and resilience by emerging once again from its own ashes and pushing through against all odds. This past year was not without its obstacles. On the contrary, we’ve witnessed several events and incidents that caused massive waves in the crypto sphere and destabilized the already volatile market. However, the asset held firm to its course which prompted many traders and investors to buy Bitcoin in the hope that it will experience further appreciation in the upcoming year.
Does this mean it’s going to be smooth sailing for Bitcoin from here on? Not exactly. Although it can’t be denied that Bitcoin has had a pretty impressive run over the past 12 months, it’s not all roses and butterflies for the original crypto. With transaction fees high and getting higher, there are also reasons for concern which means investors should remain cautious and keep a close eye on market developments.
2023 was Bitcoin’s rebound year
By the end of 2022, Bitcoin’s value had plummeted to $16,000. This might not seem like such a dire situation if you have no point of reference, but when you put things into context and compare this price to Bitcoin’s all-time high of $68,789 you realize the magnitude of the downfall. So, it’s safe to say that Bitcoin didn’t step into 2023 in the best shape.
However, as the weeks and months unfolded, we saw Bitcoin pick up pace and gradually increase in value. As expected, the journey wasn’t linear, being marked by slight retreats and periods of stagnation as the asset faced multiple resistance points along the way. Bitcoin particularly struggled to top the $30K threshold which it managed to reach several times but couldn’t maintain momentum.
Then in the second half of October, Bitcoin went on a massive bull run and it was onward and upward from here. The coin surged past $30,000 then went after $35K and $37K, and on 9th December Bitcoin hit its yearly high of $44,180. Although the price has dipped slightly since, currently standing at $43,580, Bitcoin’s rise from $16K to $44K remains a massive achievement.
Analyzing the potential factors that have contributed to this sustained upward trend, most experts agree that Bitcoin’s rally was partially fueled by the excitement and anticipation caused by the potential approval of the first spot Bitcoin ETF. Since June, several major asset management companies, including investment giant Blackrock, have filed applications with the U.S. Securities and Exchange Commission (SEC) for launching a spot Bitcoin exchange-traded fund (ETF).
Although the SEC has rejected all prior applications, many analysts believe this time the agency might finally give the green light. The surging optimism caused the Bitcoin price to rise several times in the past few months. The approval of a spot Bitcoin ETF would mark a significant milestone in Bitcoin’s history and for the crypto market at large, validating Bitcoin as a mainstream financial tool and boosting the legitimacy of digital assets.
The other aspect that has likely influenced Bitcoin’s trajectory is represented by the impeding halving event. Bitcoin is known to experience a price increase in the months leading up to each halving and so far, the pattern seems to have plaid out as expected.
Why are transaction fees increasing?
While Bitcoin’s 2023 price increase has been like a breath of fresh air after a disastrous 2022, not all Bitcoin-related developments bring good news. One of the areas that pose a cause for concern is the rising transaction fees. Bitcoin fees have increased significantly over the past months, reaching a yearly high of $37 on 17th December.
According to data from BitInfoCharts, the average fee per transaction was standing at $31.61 at the time of writing, being considerably higher than the average global daily income estimated at $26. This is not the first time Bitcoin transaction fees surge, but the fact that the trend shows no signs of retraction and continues to rise makes the situation more worrying than in previous situations.
It's important to note that transaction fees are not linked in any way to the value of the funds being transferred. They are determined by the data volume and demand for block space. The more effort miners have to put in to validate blocks and confirm transactions, the more they’ll charge for their work.
Analysts point to the emergence of Ordinals as a potential explanation for this phenomenon. Ordinals are digital assets attached to individual satoshis (SATs), the lowest denomination of Bitcoin. So, in a way, they represent Bitcoin’s equivalent of non-fungible tokens (NFTs).
The problem with Ordinals is they take up block space from monetary transfers. Therefore, transactions on the Bitcoin blockchain take more time to process and become more expensive. Crypto supporters have diverging opinions about Ordinals. While many highlight the benefits they provide like fueling innovation and expanding the network’s use cases, others believe they detract from Bitcoin’s original purpose, namely serving as a mechanism for conducting peer-to-peer transactions.
Bottom line
Although Bitcoin has experienced outstanding growth in 2023, its trajectory over the past year could be better described as a mixed bag. We’ve seen the crypto leader surge and recover part of its losses, but aspects like high transaction fees, lack of regulatory clarity, and constant market volatility cast a shadow of concern over the asset. This leads us to think that 2024 might also be a year of contrasts for Bitcoin and the crypto industry.
