In May, Bitcoin posted its first monthly loss since December 2022 with a negative 6.98%. However, this consolidation was not obviously driven by a change in fundamentals or the broader macroeconomic environment. The crypto market was looking for direction and liquidity in this phase before the United States Federal Reserve announced a pause on the rate hiking cycle in June. Many indicators, such as the futures market and VC investment, point to an optimistic underlying sentiment.
While traditional markets and tech stocks were able to continue their rally in May, actual price action in the crypto market remained suppressed and took some time to spring from its woodworks. Blue chip crypto stocks also saw a strong month posting a month-over-month return of 7%. Mining operations and other established ventures continued to benefit from the previous phase of the market’s recovery back in March. The most notable gains were again made by mining stocks, with Bit Digital’s stock rising by an astonishing 77% after mining operations in Iceland were announced.
As most now expect Bitcoin to already have hit its low for the current cycle, new mining facilities with low electricity prices and the newest hardware appear less risky to investors than other sectors of the crypto market. Meanwhile, according to Cointelegraph Research’s Venture Capital Database, VC investment surpassed $1 billion for the first time since September 2022 last month, rising by 34% from April, with 81 deals recorded. This is the third consecutive uptick in VC investment, but it remains unclear if this means activity will rise sustainably from bear market levels.
In terms of network activity, after the addition of fungible, so-called BRC-20 tokens to the Ordinals protocol, the Bitcoin network experienced its first significant fee spike since 2021. This was a positive for miners, who benefitted from spikes in revenue. The ratio of fee revenues to total mining revenues briefly hit its second-highest level in history at 43% on May 8, before dropping to around 5% in the weeks after, which is still significantly elevated from levels at the start of the year.
Despite seeing the strongest network activity in the bear market, it remains uncertain whether recently added features, such as migrating ERC-721 tokens from Ethereum to the Bitcoin blockchain, can revive the hype or if fee revenues will fade back into insignificance within the greater context of mining economics. However, the consistent uptrend in VC investment and positive developments in mining stocks indicate that the crypto market may be slowly regaining momentum.
Source: Cointelegraph
