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- Bitcoin has proven that its best use case is as a digital store of value.
- There is a significant risk of mass liquidation and selling.
- Bitcoin has limited adoption as a payment system and lacks the smart contract capabilities of other cryptocurrencies
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Bitcoin has one good use case in a world where digital assets need to be nimble, which may not work out well in 2023.
Bitcoin's (BTC 0.09%) fortunes turned south in 2022 as the token's value fell 64% and both investors and traders began to question the cryptocurrency's future. Bitcoin failed to be a hedge against inflation while falling behind upgraded blockchains like Ethereum (ETH -0.04%) and Solana (SOL 3.08%) when it comes to utility.
As the calendar turns to 2023, will Bitcoin gain traction and get back to $30,000, or is the bull run over? Here's what you need to consider
Liquidation risk is very real
While Bitcoin's use as a store of value may seem like a positive, it is not without its risks. One major concern is big holders being forced to sell. Michael Saylor's company, MicroStrategy (MSTR 2.48%), holds 132,500 bitcoins as of Dec. 27, at an average purchase price of $30,397 per token. MicroStrategy also has $2.4 billion in debt, and its operations can't support that. If Bitcoin falls further, there's a very real risk MicroStrategy would need to liquidate its tokens.
Digital Currency Group is another concern with its Grayscale Bitcoin Trust (GBTC 2.37%) now trading well below the net asset value of its Bitcoin holdings, meaning there's additional liquidation risk. At the time of writing, the GBTC is trading at a 45% discount to its net asset value, a gap that has persisted for some time.