As the most popular cryptocurrency in the world, Bitcoin also serves as an indicator of the general health of the digital asset environment. As the strongest cyber coin, it has the highest market capitalization in the marketplace and is also the most valuable due to its scarcity. Since only a fixed amount of Bitcoin will ever be mined, the crypto has earned the moniker “digital gold”. Just like the precious metal, investors believe it has the ability to withstand inflationary pressure and keep capital rates stable within portfolios.
Yet, the crypto marketplace has been marked by significant uncertainty over the past year, with values continuing to fluctuate. Many had to adjust their strategies to ensure they would continue to record revenue. And while the first month of 2023 brought better prices, making cryptocurrencies more profitable and rejuvenating the interest and engagement investors have for them, the trend didn’t hold for the rest of the year. Now, most investors and researchers expect a challenging summer.
Gains in May
While the month of May hasn’t been great at first glance, given that the price continued to stagnate, objective research seems to suggest otherwise. According to analysts, the amount of Bitcoin held on exchanges fell by more than 10%, yet recorded profits nonetheless. While initially believed that the adoption statistics would be mixed at best, Bitcoin addresses with balances over 100k BTC have recorded a monthly decrease of over 30%.
The SOPR figure, the spent output profit ratio traditionally used to indicate realized profit, recorded a spike during the month. The levels have returned to those of December 2020, a time during which cryptocurrencies were not only more powerful but also significantly more stable. This suggests that profits have occurred at a considerable rate within the spot markets.
Network congestion
One of the most widely discussed topics in the crypto world in May was the issue of network congestion. At the beginning of the month, Binance had to momentarily put withdrawals on hold due to the congestion. Even after activities resumed, issues remained. There were around 400,000 unconfirmed transactions on the blockchain, higher than anything recorded during the bull runs of 2018 and 2021.
One of the main issues of the congestion is the steep transaction fees. As the blockchain becomes busier and oversaturated with activities, costs also rise. While this is good for miners, it can be pretty destructive for investors, many of whom see the need to pause their ventures until the values go down a little. Monthly address activity fell by nearly 14% on the BTC blockchain during May as the high transaction rates deterred investors.
One of the main reasons for this change was the introduction of the Bitcoin Ordinals. These virtual items, akin to non-fungible tokens, generated a legitimate craze which caused prices to become way more elevated as well.
Regulatory pressures
Discussions surrounding regulations within the crypto environment have been commonplace as of late. Digital assets have gradually entered mainstream markets, which is good for their visibility, but not for their resilience. Becoming part of standard markets has helped Bitcoin gain more support against its detractors, proving that it can operate within a financial system.
Yet, it has also made it more vulnerable to the problems faced by fiat currencies and traditional assets, including inflation and devaluation. As a result of its emergence within traditional markets, lawmakers considered it fitting to commence a regulatory process within the ecosystem. Several reasons were cited within this process, chief among them being the troubles exchanges dealt with over the last year. As many of them were revealed to have conducted illicit activities, they were forced to cease business. Numerous investors lost substantial amounts of capital as a result.
However, when significant exchanges are targeted, it creates further uncertainty within the market, as investors aren’t exactly sure how to proceed. During times like these, even the prices of the safest currencies, such as Bitcoin, will be affected.
Lower prices
As of June 7th, the price of Bitcoin stood at around $25,660, a 4.13% decrease over the past twenty-four hours. The change within the past seven days showed a deficit of 8.04%. These figures are a far cry from the highest value Bitcoin has ever had, which approached $70,000. Many wonder when the crypto will recover these values or at least begin steadily approaching them again. While some believed that 2023 would be the year for these changes, most analysts now believe that investors would be more realistic in preparing for it in the upcoming years.
This isn’t to say that Bitcoin won’t ever recover, just that it will take a little more than initially predicted for it to do so. Some researchers believe this to be rather positive, as sudden growth might create further problems and do more harm than good, as it would contribute to steep volatility. Others, however, have taken a more positive view of the recent events.
Some investors believe that Bitcoin is doing quite well compared to other times throughout its history when it encountered difficulties of a similar magnitude. It seems that tumultuous events will no longer shake Bitcoin to its core, which is good news for its recovery process.
Commodities VS Securities
There has been much discussion recently regarding the use of cryptocurrencies as either commodities or securities. Although the general claim is that digital finance belongs under the umbrella of securities, the market itself appears to be saying otherwise. Similar to oil and gold, whose prices are largely unaffected by the news and daily events, Bitcoin too seems to have begun working based on the same rationale.
This is particularly noteworthy, considering cryptocurrencies are well-known for being vulnerable to world events and breaking news. It might be that the environment is gradually becoming more mature, which will naturally make it more stable as well.
Although the cryptocurrency market may not seem at its best right now, it’s important to remember that investors appear to believe that digital assets still have a bright future ahead of them, maybe one that’s even better than its 2021 heyday.
