Bitcoin history doesn’t repeat, but it often rhymes


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We had warned in prior newsletters earlier this year of clear signs the crypto market risked overheating.
Indeed, we sounded the alarm bell in April here. And there were signs of trouble brewing as early as January-February (see here).
Even by crypto’s volatile standards, May was a pretty rocky month. So with bitcoin currently down ~40% from its high earlier this year where do we go from here?
Last week Chief Strategy Officer and Head of Markets Charlie McGarraugh, who accurately called the May sell-off, presented his case on our podcast that the 2020–21 crypto bull market is still intact.
On Tuesday during our monthly live event Head of Research Dr Garrick Hileman also issued a recommendation to medium-to longer-term hodl’ers (18-month and beyond timeframe) that current price levels are looking attractive for accumulating bitcoin (BTC).
Bottom-line: our long-term confidence in the transformative and disruptive nature of blockchain technology and decentralized finance remains unshaken. And for anyone who missed bitcoin’s runup to $64k we believe now is an attractive entry point to own your first (or more) crypto.
Here are our latest thoughts on what’s driving crypto markets and analysis of bitcoin on-chain activity this month.


  1. Market Movements
  • Crypto has already begun recovering from its May lows in the wake of positive national (El Salvador) and institutional adoption developments (eg MicroStrategy’s well oversubscribed $500m debt offering to buy more bitcoin)
  • The strong performance of gold in May +8% as price inflation data comes in hot is bullish for the bitcoin hard asset investment thesis
2. China crypto crackdown — our thoughts
  • While skepticism of China’s latest crypto crackdowns is understandable, this time does appear to be different
  • China is squandering its early lead in blockchain technology and a golden opportunity to utilize crypto to advance its geopolitical objectives
  • Bottom line: while China cannot kill bitcoin, crypto will be significantly smaller if China’s government can successfully suppress Chinese crypto adoption
3. On-chain insights: Highlights from the data science team
  • Activity on the Bitcoin network continued to decline for the month
  • The average fee per transaction was $15, a decrease from last month’s $30
  • Surprisingly, the estimated hash rate increased 2.5%, showing that mining bitcoin has remained profitable for most of the miners despite the drop in price
  • After months of a congested mempool, May saw a first drop in the mempool size around the 10th of May; this is a direct consequence of sustained hash rate levels and lower on-chain activity
  • Users can take advantage of the low fees and consolidate funds into a single UTXO, making transactions cheaping to send in the future
  • Sending transactions from the Wallet will be cheaper now that it supports SegWit transactions and will continue to keeping the general state of the mempool low
4. How the Crypto Crash Reflected in DeFi Lending Protocols — Guest Post by Into the Block’s Jesus Rodriguez
  • DeFi lending markets were stress tested during last month’s crypto markets crash
  • On the Compound protocol, liquidations, repaid loans, and withdrawals all increased
  • Mid-market investors were the most active with the majority of loans between $10K-100K
  • More debt was repaid than new loans originated
5. What we’re reading, hearing, and watching

1. May Market Movements

In May Bitcoin (BTC) followed-up April’s relatively modest decline (which had been the first monthly decline since September 2020) with a major sell-off.
Bitcoin finished May -36% for the month. Ethereum fared better but was still down -8%.
What happened? A near perfect storm of negativity ranging from damaging Elon Musk tweets to China “bans bitcoin” (for the umpteenth time) hammered crypto markets.
Table 1: Price Comparison: Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar (% Change)

Probably the most interesting non-crypto market action in May that is relevant to crypto (and bitcoin in particular) was the performance of gold.

The yellow metal had its best month in nearly a year, up 8% for May. Price inflation data is coming in hot with food, energy and other prices rising sharply (Figure 1).

Figure 1: Some food prices are at five years highs, which could prove particularly destabilizing in developing countries



Food and energy prices (with increases in the latter often driving the former higher given the role energy plays in food production) can prove very destabilizing in vulnerables areas.
Indeed, the Arab Spring a decade ago was arguably triggered in part by increasing food costs. Many laid the blame for rising food prices on the Federal Reserve’s loose monetary policy at that time under Chairman Ben Bernanke.
Bottom line: we believe our hard asset investment thesis is being validated and the crypto bull market is intact.

2. Our thoughts on the latest China crypto developments

As we are set to publish bitcoin’s price is being buoyed by news that El Salvador will be the first country to make bitcoin legal tender. This and significant institutional demand for MicroStrategy’s latest debt raise to purchase bitcoin have combined to push bitcoin back above the $36k level.
At the same time, we are watching closely for continued downward price pressure on crypto due to the still evolving situation in China.
Crypto market participants have understandably become somewhat jaded to the numerous “China is cracking down on bitcoin!” announcements through the years. In the past these headlines have failed to materialize into significant or lasting impact on crypto adoption both within China and around the world.