After four months of gains, Bitcoin stumbled in May.
The world’s most popular cryptocurrency just recorded its first monthly loss of the year, about 4.6%, as the crypto market declined after recovering a bit to start the year. Bitcoin underperformed stocks, bonds, and gold over the past four weeks, according to Bloomberg.
The coin was trading around $47,000 in March 2022, but ended the year near $16,000, a low unseen since the height of the pandemic in November 2020.
In early 2023, the cryptocurrency looked like it was bouncing back, notching a 39% monthly increase in January. By mid-April it was up 83% year to date, but by Wednesday that figure was closer to 62% as the global crypto market cap teetered on the edge of losing its trillion-dollar asset-class designation.
As of Wednesday morning, Bitcoin was down about 3% to around $26,950. The second most popular cryptocurrency, Ether, was down about 2.5% to $1,850.
The Bitcoin network has received a flurry of new activity from the increasing popularity of its NFTs, called Ordinals, which inscribe media onto the smallest denomination of a Bitcoin. Still, the jump in popularity for non-financial uses of the blockchain has received pushback from hardcore fans who believe Bitcoin is straying from its original purpose. Others have complained about elevated network fees because of the increase in transactions being recorded on the blockchain.
In recent weeks, Bitcoin has taken a hit as signals have emerged that the Federal Reserve may continue hiking interest rates. The Fed's preferred inflation metric in April rose to 4.4% from a year earlier, and up from the 4.2% annual inflation in March. In an interview with the Financial Times on Wednesday, Federal Reserve Bank of Cleveland President Loretta Mester said that she doesn’t "really see a compelling reason to pause" the hikes.
Despite the monthly loss, Mark Connors, head of research for the digital asset manager 3iQ, said Bitcoin's fundamentals remain strong, with it still up more than 60% since the start of the year.
Connors said the Bitcoin blockchain is still seeing strong network traffic, which was strengthened in part by the rise of Ordinals and other new applications being built on the blockchain. Still, the cryptocurrency has seen a drop in liquidity, which can lead to volatility, partly because many retail traders have exited the crypto market since last year amid slumping prices.
"Even though it's a decline," Connors added, "anyone who's been in it knows that [Bitcoin] doesn't go up in a straight line."
