A Look Back At May: Cryptosphere Faced Tough Headwinds
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Crypto markets ended in negative territory in May as inflationary pressure, jitters on the US regional bank market and lengthy talks to reach a deal on raising the US debt ceiling weighed on investor sentiment. The congestion on the Bitcoin blockchain early May was yet another blow to the industry.
Both the US and European central banks raised their benchmark rate early May. This pushed cryptos lower, as higher interest rates mean investors can generate higher returns with less risky assets such as bonds. They in turn switch away from riskier crypto assets.
The first half of the month also witnessed renewed uncertainty in the banking sector, when the US authorities had to save the regional bank First Republic from collapse.
The second half of the month was dominated by worries that a US debt ceiling deal would not be brokered ahead of the June 5 deadline. This would have triggered a default of the US federal government and caused havoc on the global financial markets. Republicans and Democrats ultimately reached an agreement on May 27, and a compromise was passed through the House of Representatives on May 31. It is expected to pass the US Congress without any hurdles given the Republicans hold a majority there.
The monthly cryptocurrency exchange volumes as a consequence fell to 438 billion US dollars in May, data from the Block show. This is the lowest monthly volume since October 2020. Binance remains the largest exchange.
Bitcoin posts first negative month in 2023
Bitcoin fell 4.2 percent in May. The largest cryptocurrency came under massive pressure early May when its transaction fees surged to a two-year high. The increase was triggered by a soaring demand for memecoins operating on the Bitcoin blockchain. The BRC-20 token standard that enables this was created two months ago. Read more about this hype here.
The upcoming Bitcoin halving, set to take place in April next year, may support the price of the cryptocurrency in the coming months. The price of Bitcoin has soared following the three previous halving events that took place in 2012, 2016, and 2020. Read more about it here. There is, however, no guarantee that its past performance is indicative of future results.
Ethereum bucked the negative trend in the crypto market rising 1.4 percent during the month. Roger Ver, an early Bitcoin start-up adopter, forecast that the second largest cryptocurrency will be the “front-runner in terms of driving worldwide adoption,” in an interview broadcast on the “Show Me the Crypto Show.”
Ripple CEO sees signs of XRP court case “pretty soon”
XRP rose 8.3 during the month of May. Ripple, the owner of XRP, expects that the court case filed by the Securities and Exchange Commission (SEC) against it in 2020 to be over “pretty soon”.
EU moves ahead on the regulatory front, US lags far behind
Experts hailed this move as historic, given “the history of cryptocurrencies shows that billions of dollars will flow to the jurisdiction most favorable...”the head of Strategy and Research at Matrixport, Markus Thielen, said on LinkedIn.
“Europe already has the most crypto-friendly banks in the world, by far: With the MiCA regulation coming into force, this global lead could increase even further. Facilitating access to banking services for crypto-asset service providers is explicitly states as one of its goals,” Patrick Hansen, who works as director at Circle, tweeted.
Overseas, Congress continues to discuss similar rules, acknowledging a lack of action will have severe repercussions on the US crypto universe. “If we fail to provide a functional framework for digital assets in this country, all we’re doing is forcing this activity to happen on offshore exchanges, rather than in a regulated US environment—and this will hurt American investors more than anything,” Republican French Hill said on May 10.
However, US President Joe Biden criticized the industry before reaching an agreement on the debt ceiling deal stating: “I’m not going to agree to a deal that protects wealthy tax cheats and crypto traders while putting food assistance at risk for nearly a hundred — excuse me — nearly 1 million Americans” on May 22.
Global securities regulator launches consultation on crypto
The International Organization of Securities Commissions (IOSCO) released a consultation paper aiming at addressing concerns related to market integrity and investor protection issues in the global crypto-asset markets.
The global regulator published 18 policy recommendations amongst other covering market manipulation, insider trading and fraud, cross-border risks, and regulatory cooperation, as well as custody and client asset protection.
Stakeholders have until July 31 to submit feedback. The target is to have the recommendations in place by the beginning of the fourth quarter.