By Suvashree Ghosh and Sidhartha Shukla*
Analysts point to industry-specific risks, including transaction congestion on Bitcoin’s blockchain, weaker liquidity in digital asset markets, and regulatory tightening in the US.
Bitcoin has gone from leader to the bottom of the global performance market scoreboard amid congestion on its blockchain and concerns about decreased liquidity in cryptoactive markets.
The token has retreated about 6% so far in May, while Bloomberg indicators of global stocks, bonds, and commodities have posted more stable performance, and gold has jumped to record highs.
Bitcoin’s recent difficulties contrast with a 72% rally last quarter that left traditional investments in the shade and generated rumors of a new bullish phase for the largest digital asset after the 2022 crypto debacle.
Recently, the spotlight has fallen on industry-specific risks, including a bitcoin blockchain transaction bottleneck, weaker digital asset market liquidity, and an ongoing regulatory squeeze in the US.
“We’re in a challenging period right now,” Matt Hougan, chief investment officer at Bitwise Asset Management, told Bloomberg Television.
“We’re going to come out of this period with new rules, with clearer regulations, and that will contribute” to a multi-year bullish market, he said.
Bitcoin fell as much as 1.9% on Thursday, trading near US$27,470 in the morning.
Tokens such as Ether and Solana also retreated on the day.
A recent wave of strong activity on the Bitcoin network involving meme tokens such as Pepe has put pressure on the leading cryptocurrency, causing congestion and transaction fees on the blockchain.
The jump in cost led crypto exchange Binance to temporarily halt bitcoin withdrawals twice on Sunday, weighing on cryptocurrency investor sentiment.
“Investors may be concerned about the reliability and scalability of the Bitcoin network,” said Stefan von Haenisch, head of sales trading at OSL SG Pte in Singapore.
“It is important to note that these problems are not necessarily indicative of a vulnerability in the blockchain itself, but rather in how it is being used and maintained.”
Blockchain data shows more than 300,000 pending transactions on the Bitcoin network.
The average fee per transaction was US$14 on Wednesday, coming from US$0.60 in early 2023, according to CryptoQuant.
Both metrics are off their peaks but still high.
In addition to highly speculative meme tokens, broader liquidity is at risk in the wake of venture breaches involving cryptocurrencies such as FTX and a tougher stance from US regulators.
For example, some of the leading market maker firms, Jane Street Group and Jump Crypto, are ceasing to trade digital assets in the US, while Jane Street is also scaling back its global ambitions in the crypto segment.
CCData figures indicate that spot trading volume on Binance, the largest digital asset platform, fell 48 percent to US$287 billion in April – the second-lowest monthly trading volume since 2021.
Bitcoin’s year-to-date valuation fell to 66% from 84% in mid-April.
The token has retreated about US$41,000 since its pandemic-era all-time high of nearly US$69,000 in November 2021.
*With assistance from Akshay Chinchalkar.
With information from Bloomberg
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