Robust crypto fundamentals pull through after May’s monthly red candle: Report

In May, Bitcoin (BTC) experienced its first monthly decrease since December 2022, with a drop of 6.98%. This consolidation, however, did not seem to be caused by any changes in fundamentals or the overall macroeconomic situation. The crypto market was searching for guidance and liquidity during this period before the United States Federal Reserve declared a cessation of the rate raising cycle in June.

Many indicators, such as the futures market and venture capital investment, are pointing to a positive sentiment beneath the surface. Despite traditional markets and tech stocks continuing to rise in May, the crypto market’s actual price action remained subdued and took a while to emerge from its hiding place.

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Mining stocks rally, while VC activity shows signs of life

Blue-chip cryptocurrency stocks had a strong month, with a month-on-month return of 7%. Established operations in the sector, such as mining, continued to benefit from the market’s revival in March. Mining stocks were the clear winners, with TeraWulf’s valuation skyrocketing and Bit Digital’s stock climbing 77% after the launch of their mining operations in Iceland.

Many mining companies that had taken on too much debt had been hard-hit during the bear market due to the tightening of credit and the decrease in BTC prices, thus giving their competitors the opportunity to rapidly increase their valuations. Since most anticipate that Bitcoin has already bottomed out in this cycle, new mining facilities with low electricity costs and the most up-to-date hardware seem to be less risky investments than other areas of the crypto market.

Last month, VC investment surpassed $1 billion for the first time since September 2022, according to Cointelegraph Research’s Venture Capital Database. It increased by 34% from April, with 81 deals being recorded. This is the third consecutive rise in VC investment, but it is uncertain whether this indicates activity will stay elevated from bear market levels. In the bigger picture, inflows are still lower than one-fourth of bull market levels.

BTC sees strongest network activity of the bear market

Throughout history, there have been numerous methods of encoding information on the Bitcoin blockchain. For a considerable period of time, the most commonly used choices were OP_Return scripts, which formed the basis for Omni and Counterparty non-fungible tokens (NFTs). Yet, due to a loophole created by the Taproot scripting language, the recently much-talked-about Ordinals protocol enables much larger inscriptions – theoretically, up to 4MB.

Following the integration of fungible BRC-20 tokens into the Ordinals protocol, the Bitcoin network experienced its first major fee surge since 2021. This was a boon to miners, who reaped the rewards from the increased fees. On May 8, the proportion of fee income to total mining income reached its second-highest ever level at 43%. In the subsequent weeks, it decreased to around 5%, which is still considerably higher than at the beginning of the year.

It remains to be seen if the recently added feature of transferring ERC-721 tokens from Ethereum to the Bitcoin blockchain will reinvigorate interest, or if the income generated from fees will dwindle and become insignificant in the greater scope of mining economics. The mining portion of the Cointelegraph Research Monthly Trends report supplies a monthly summary of numerical mining data and will observe this development intently.

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