The U.S. cryptocurrency market remains under regulatory pressure. Even hearings in Congress, where SEC Chair Gary Gensler faced harsh criticism for his agency’s approach to industry regulation, didn’t change the situation. Still, legislative uncertainty in the United States regarding the crypto market persists. Against this backdrop, the long-awaited adoption of crypto legislation in Europe and the actions of Chinese authorities to form a major crypto hub in Hong Kong can be highlighted. But what events could be of key importance to the crypto market in May 2023?
CP Media asked experts to give more or less unbiased forecasts for the next month.
Note: The information appearing here is for informational purposes only and does not contain investment advice or recommendations. All financial management decisions should be made based on your own analysis and consultations with professionals.
Dmitry Noskov, Analyst at StormGain, believes that the main attention will be the Fed’s meetings in May and June. “A number of economists agree that the regulator will be forced to pause the series of raising stakes, as tightening monetary policy leads to stagnation in the financial environment and increases the risk of new bankruptcies in the banking industry. As soon as the Fed steps back, risky assets, including cryptocurrencies, will get a boost. In this case, Bitcoin may reach the level of $35,000, and Ethereum — $2,300,” concludes the expert.
This opinion is partially shared by Evgeny Tarasov, News Editor at CP Media. He thinks that among the planned events, the results of the Federal Reserve’s meeting, scheduled for May 3, will be crucial for the market. “The U.S. financial regulator has no obvious reason to soften its monetary policy yet. The Bureau of Labor Statistics predicts an inflation level of 5.2% in April. We should recall that by raising the key rate, the Fed is seeking a steady decline in inflation to a level of 2%, which hasn’t been observed so far. Therefore, a significant part of the market expects further growth of the key rate by 0.25% in early May, up to 5-5.25% per annum,” says Evgeny.
However, he believes further growth of the key rate may lead to several outcomes. One of them is the further destabilization of the banking sector in the U.S., which will contribute to the growth of Bitcoin used as a tool for hedging such risks. This was clearly illustrated by the situation on April 25 — First Republic Bank’s shares lost more than 50% of their value during the trading session, and BTC quotations reacted with almost 10% growth.
It’s worth noting that in Q1 2023, according to Crunchbase, blockchain VC funding declined by nearly 30% compared to the previous quarter and by 82% compared to the same period last year. What’s more, this is the fifth consecutive quarter of decline, and while the downward trend has slowed somewhat, it suggests a continued bearish trend in the market. All the while, an increase in the key rate strengthens the value of the U.S. dollar and boosts treasury bond yields.
“What will capital choose in such a situation: investing in high-risk assets, such as cryptocurrencies, or investing in securities with secured income?” Evgeny asks rhetorically.
Vince Pellizzari, Trader at CoinsPaid, stated his expectations succinctly:
“The BTC price went up and even stayed briefly above $30,000, helped by the Fed’s liquidity injection to support the U.S. domestic banking system in March. In my opinion, this sudden return of risk appetite was largely due to this liquidity injection,” elaborates Vince. “The Fed bought time, but soon its balance sheet will return to pre-March levels. And it’s during low tides that we see who has been swimming naked. Will we see the effect of the liquidity drying up in May, or will BTC take off to the Moon in anticipation of its next halving in April 2024?”
Vince notes that timing the market is nearly impossible, but if the Fed keeps taking liquidity out of the economy the way it is now, we should expect further unpleasant surprises from financial institutions. For example, First Republic Bank lost 90% of its value this year.
On the other hand, if BTC overcomes the key resistance of $30,000, we can expect further development of the bullish trend that started this year. “At the moment, I tend to take a fairly neutral view on Bitcoin’s prospects for the coming month,” Vince concludes.
