The crypto rebound is losing steam, leaving Bitcoin on course for its worst month since the FTX exchange collapsed in November last year.
The roughly 8% drop in May is Bitcoin’s first monthly retreat of 2023. A gauge of the top 100 digital assets has dropped by a similar magnitude.
The largest crypto coin bounced 84% from the turn of the year through mid-April, briefly scaling $31,000, but the climb has since fizzled to 64%. Ebbing liquidity and restrictive monetary policy have curbed enthusiasm for crypto.
Crypto geeks had seized on the collapse of US regional banks in March as validating a distrust of fiat currency, sparking gains for Bitcoin, but that proved to be a temporary prop as officials steadied the financial sector.
“What you really need to do to get another wave of Bitcoin and crypto-asset buying is to show real utility and development to get those crypto curious people to get into the crypto ecosystem,” John Wu, president of Ava Labs Inc., said on Bloomberg Television.
The Bitcoin network has seen a flurry of activity this year involving meme coins and nonfungible tokens. That pressured Bitcoin earlier in May by causing a spike in blockchain congestion and transaction fees, which has since eased.
Assets like stocks, bonds and gold fared better than crypto over the past four weeks. Hype over artificial intelligence was particularly intense, stealing the limelight and spurring a more than 10% gain in an index of AI-linked shares.
“Crypto is losing out to tech stocks that have a stronger narrative with the AI and ChatGPT stories driving investor interest,” said Markus Thielen, head of research at Matrixport. Meme coins like Pepe are seeing “very low” turnover, indicating a lack of investor engagement, he added.
Traders are also evaluating the implications of the US debt-limit deal, which Congress is racing to pass before June 5, the date by which the nation could default. If the deal is approved, it could lead to a deluge of bill sales that sucks liquidity out of markets.
“Liquidity impacts tend to be more visible over longer horizons,” said Caroline Mauron, co-founder of digital-asset derivatives liquidity provider OrBit Markets. “Large Treasury issuances that may follow the deal are unlikely to materially affect the Bitcoin price in the short term.”
Bitcoin fell more than 2% to $27,150 as of 8:22 a.m. in London on Wednesday. Smaller coins such as Ether, Solana and Avalanche also slid. Bitcoin remains about $42,000 off its 2021 peak after a partial revival from last year’s rout.
