The Crypto Misfortunes of May

Looking back at May in the cryptocurrency market is a little painful, to say the least. We witnessed a dramatic fall in prices after months of optimism as values skyrocketed. Indeed, the decline on19th May 2021 decline could be likened to the Black Thursday crash in March 2020.

Glassnode Insights has published a report on May’s activities and examines what really happened. According to the study, “The worst of the sell-off on 19 May printed the largest daily candle in Bitcoin history with an intra-day price range of $11,506. Bitcoin’s price fell a total of 47.3% since 9th May.” As we know, it wasn’t just bitcoin that was affected; the entire market took a tumble. The activity since the 19th has people wondering if this month marks the coming of another Crypto Winter rather than being full of the joys of spring. Are the bears returning and has the bull market been cut short are questions most people want answers to.

The answer

As the bitcoin market grows in valuation and matures, it both attracts, and requires larger pools of capital and volume to sustain and reach new highs. Since late 2020 we have seen an inflow of institutional investors due to panic over monetary policies and the pandemic. The largest investment vehicle available for traditional investors is the Grayscale GBTC Trust product and for much of 2020 and early 2021, investors took advantage of strong institutional demand via in-kind arbitrage of the persistent GBTC price premium.

Through Jan 2021, the GBTC trust saw inflows of almost +50k BTC whilst GBTC traded at a consistent premium between 10% and 20% to spot. But as the premium dipped below 10% in January, those inflows started to slow, and in late February they stopped completely.

A look at the buy and sell transactions of bitcoin also offers another explanation for the decline. Although bitcoin recorded a remarkable inflow over the past two years, investors were spurred into a panic as the sell pressure in May heightened.

The escape route

Panicked by the falling prices, investors turned to stablecoins as safe havens, and we have seen their value increase quite dramatically. For example, the USDT led the dollar-backed market showing a 30 percent increase, The USDC followed it with an 88 percent increase, and DAI had a 38 percent increase.

But overall the news is good. Glassnode points out,” The majority of selling appears to have been short term holders, whilst long term holders appear to have bought the dip with increasing conviction,” adding, “How the market recovers from here will no doubt be a test of market conviction amidst what continues to be a favourable macro backdrop for digital scarcity.”

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Creditum is the mobile application integrating regular cash with Crypto, Holding, Buying, Exchanging and Spending

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