Bitcoin experienced a slight decline of just over 7% in May, marking its first negative month since December of the previous year. This drop is notable as Bitcoin’s worst performance since the cryptocurrency exchange FTX collapse caused a 16% price plunge in November. However, it is worth mentioning that May 2023 showed improvement compared to the losses of 35.38% and 15.56% in May 2021 and 2022, respectively.
As of Wednesday, Bitcoin was trading down around 2.0%. This decline can be attributed to several factors, including macroeconomic headwinds such as strengthening the US dollar due to better-than-expected job openings data and hawkish statements from the Federal Reserve. Technical selling also contributed to the downward pressure, with Bitcoin failing to surpass its 50-Day Moving Average and confirming a downtrend from the highs observed in April and early May. Consequently, technical analysts call for a retest of the recent lows below $26,000.
Looking ahead to June, historical data suggests that this month typically sees the least price appreciation for Bitcoin throughout the year. Over the past decade, Bitcoin has only appreciated by an average of around 7% in June, making it one of the weakest-performing months alongside September and August. More worrisome is the fact that, in the past three years, June has witnessed an average price decline of 15.6%.
While expecting a drop of more than 15% in June might be overly pessimistic, chart analysis indicates that the price risks for Bitcoin remain tilted to the downside in the upcoming month. Recent shifts in the macroeconomic environment support the medium-term downtrend in Bitcoin. Economic indicators such as US jobs, service sector (PMI), and inflation data have consistently exceeded expectations, challenging the notion that the Federal Reserve has completed its rate hikes. Consequently, the US dollar has gained support, and US yields, including the 2-year and 10-year, have risen above recent multi-month ranges.
Despite the optimism surrounding artificial intelligence and a reduction in US recession concerns, which would typically benefit Bitcoin, the stronger dollar and higher yields have exerted a more significant influence. If upcoming data on jobs, inflation, and economic activity in June reflect a resilient US economy grappling with persistently high inflationary pressures, another interest rate hike by the Federal Reserve is likely. As a result, the price of Bitcoin could face further declines in the month ahead.
Bitcoin’s performance in May reflected a minor setback but fared better than the previous two years. However, the road ahead remains challenging, with historical trends and the current macroeconomic environment suggesting that Bitcoin could continue its downtrend in June. Market participants will closely monitor upcoming economic data and the Federal Reserve’s actions, as they will play a crucial role in shaping Bitcoin’s price trajectory in the coming weeks.
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