Sputtering Bitcoin Tracks Stocks and Gold as Trading Background for Crypto Sours

by James · May 11, 2023

(Bloomberg) — Bitcoin has flipped from leader to laggard on the global market leaderboard, amid congestion on the blockchain and concerns about failing liquidity in crypto markets.

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The token has retreated around 6% so far in May, while Bloomberg gauges of global stocks, bonds and commodities have steadier performance while gold has jumped towards record highs.

Bitcoin’s recent efforts contrast with a 72% rally last quarter that overshadowed traditional investments and sparked talk of a new bull phase for the biggest digital asset after 2022’s crypto rout.

The spotlight has recently fallen on sector-specific risks, including traffic jams of transactions on the Bitcoin blockchain, thinner liquidity in digital asset markets and an ongoing regulatory crackdown in the US.

“We are in a challenging period now,” Bitwise Asset Management Chief Investment Officer Matt Hougan said on Bloomberg Television. “We will eventually come out of this period with new rules, with clearer rules and that will contribute” to a multi-year bull market, he said.

Bitcoin fell as much as 1.9% on Thursday to trade near $27,470 as of 11:45 a.m. in Singapore. Tokens like Ether and Solana also declined.

A recent wave of activity on the Bitcoin network involving meme tokens like Pepe ended up pushing the top cryptocurrency by causing an increase in congestion and transaction fees on the blockchain.

The jump in costs led crypto exchange Binance to temporarily halt Bitcoin withdrawals twice on Sunday, weighing on sentiment.

“Investors may be concerned about the reliability and scalability of the Bitcoin network,” said Stefan von Haenisch, head of retail trading at OSL SG Pte in Singapore. “It is important to note that these issues are not necessarily indicative of a vulnerability in the blockchain itself, but rather in the way it is used and maintained.”

Blockchain data shows over 300,000 pending transactions on the Bitcoin network. The average fee per transaction was $14 on Wednesday, up from 60 US cents at the start of 2023, according to CryptoQuant. Both metrics are off the top, but still high.

Outside of highly speculative meme tokens, greater liquidity is at risk in the wake of crypto explosions like FTX and the tougher US stance.

For example, top market-making firms Jane Street Group and Jump Crypto are pulling back from trading digital assets in the US, while Jane Street is also scaling back its crypto ambitions globally.

Figures from CCData indicate that spot trading volume on Binance, the largest digital asset exchange, fell 48% to $287 billion in April – the second lowest monthly trading volume since 2021.

Bitcoin’s year-to-date jump has ebbed to 66% from 84% in mid-April. The token has lost around $41,000 since its pandemic-era all-time high of nearly $69,000 in November 2021.

–With assistance from Akshay Chinchalkar.