In May, Bitcoin (BTC) posted its first monthly loss since December 2022 with a negative 6.98%. However, this consolidation was not obviously driven by a change in fundamentals or the broader macroeconomic environment. The crypto market was looking for direction and liquidity in this phase before the United States Federal Reserve announced a pause on the rate hiking cycle in June. 

Many indicators, such as the futures market and VC investment, point to an optimistic underlying sentiment. But while traditional markets and tech stocks were able to continue their rally in May, actual price action in the crypto market remained suppressed and took some time to spring from its woodworks.

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Mining stocks rally, while VC activity shows signs of life

Blue chip crypto stocks also saw a strong month posting a month-over-month return of 7%. Mining operations and other established ventures continued to benefit from the previous phase of the market’s recovery back in March. The most notable gains were again made by mining stocks. After the explosion of TeraWulf’s evaluation, Bit Digital followed suit, and its stock rose by an astonishing 77% after mining operations in Iceland were announced.

Many overleveraged mining companies had been battered throughout the bear market due to tightening credit conditions and decreasing BTC prices, which now gives competitors a chance to rapidly raise evaluations. As most now expect Bitcoin to already have hit its low for the current cycle, new mining facilities with low electricity prices and the newest hardware appear less risky to investors than other sectors of the crypto market.

Meanwhile, according to Cointelegraph Research’s Venture Capital Database, VC investment surpassed $1 billion for the first time since September 2022 last month. It rose by 34% from April, and 81 deals were recorded. This is the third consecutive uptick in VC investment, but it is unclear if this means activity will rise sustainably from bear market levels. In a greater context, inflows remain below one-fourth of bull market levels.

BTC sees strongest network activity of the bear market

Historically, there have been many ways to inscribe data on the Bitcoin blockchain. For a long time, the most popular options were OP_Return scripts, which formed the backbone of Omni and Counterparty nonfungible tokens (NFTs). However, through a loophole introduced via the Taproot scripting language, the recently hyped-up Ordinals protocol permits much larger inscriptions — in theory, up to 4MB.

After the addition of fungible, so-called BRC-20 tokens to the Ordinals protocol, the Bitcoin network experienced its first significant fee spike since 2021. This was a positive for miners, who benefitted from spikes in revenue. The ratio of fee revenues to total mining revenues briefly hit its second-highest level in history at 43% on May 8. In the weeks after, it dropped to around 5%, which is still significantly elevated from levels at the start of the year.

It remains to be seen whether the recently added feature to migrate ERC-721 tokens from Ethereum to the Bitcoin blockchain can revive the hype, or if fee revenues will fade back into insignificance within the greater context of mining economics. The mining section of the Cointelegraph Research Monthly Trends report provides a monthly round-up of quantitative mining metrics and will monitor this development closely.

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