Bitcoin Faces a Challenging Month: Will the Downtrend Continue?

Bitcoin saw a slight decline of more than 7% in May, marking its first negative month since December the previous year. The drop is notable for Bitcoin’s worst performance since the collapse of cryptocurrency exchange FTX led to a 16% price drop in November. However, it is worth mentioning that May 2023 showed improvement compared to losses of 35.38% and 15.56% respectively in May 2021 and 2022.

On Wednesday, Bitcoin was trading down around 2.0%. The decline can be attributed to several factors, including macroeconomic headwinds such as the strengthening US dollar due to better-than-expected job vacancies data and hawkish statements from the Federal Reserve. Technical selling also contributed to the downward pressure, with Bitcoin failing to surpass the 50-Day Moving Average and confirming the downtrend from the highs observed in April and early May. As a result, technical analysts are calling for a retest of the recent lows below $26,000.

Looking ahead to June, historical data shows that this month typically sees the lowest price appreciation for Bitcoin of all year. Over the past decade, Bitcoin has only appreciated an average of around 7% in June, making it one of the weakest performing months other than September and August. Even more worrying is the fact that, in the past three years, the month of June has seen an average price drop of 15.6%.

While expecting a fall of more than 15% in June might be too pessimistic, chart analysis suggests that the risk of Bitcoin price remaining sloping to the downside in the month ahead. Recent shifts in the macroeconomic environment support the medium-term downward trend in Bitcoin. Economic indicators such as US jobs, services sector (PMI) and inflation data have consistently beaten expectations, challenging the notion that the Federal Reserve has completed raising interest rates. As a result, the US dollar is finding support, and US yields, including the 2y and 10y, have been climbing above multi-month ranges recently.

Despite the optimism around artificial intelligence and alleviating fears of a US recession, which would normally work in Bitcoin’s favour, a stronger dollar and higher yields have had a more significant effect. If the upcoming jobs, inflation, and economic activity data in June reflect the resilience of a US economy that is grappling with persistently high inflationary pressures, there is likely to be another rate hike by the Federal Reserve. As a result, the Bitcoin price could face further declines in the months ahead.

Bitcoin’s May performance reflected a minor setback but fared better than the previous two years. However, the way forward remains challenging, with historical trends and the current macroeconomic environment suggesting that Bitcoin could continue its downward trend in June. Market participants will be closely monitoring upcoming economic data and Federal Reserve actions, as they will play a key role in shaping Bitcoin’s price trajectory in the coming weeks.