Crypto Market Forecast: Week of May 15th 2023

The price of Bitcoin (BTC) has fallen by 7.0% since last week, to ~US$27K. Ether (ETH) dropped by 5.8% to ~US$1.8K. Binance-coin (BNB) similarly dropped by 3.4% to ~$315.

Last week, BNC reported Binance’s announcement that the exchange had paused BTC withdrawals from their platform, citing congestion on the Bitcoin network. Binance since announced from its Twitter account that the experience was a learning opportunity and that it would work towards enabling Lightning BTC withdrawals. “Our team has also been working on enabling BTC Lightning Network withdrawals, which will help in such situations” the tweet reads. Transaction fees on the Bitcoin base layer have since largely normalized.

Binance’s Lightning integration comes two years after its American competitor Kraken launched its own Lightning node and made deposits and withdrawals available to its own customers. Bitcoin Magazine reported that before Kraken’s Lightning integration, the company (only allowing for on-chain withdrawals and deposits at that time) required three confirmations, which led to delays of about 30 minutes, and $10 for withdrawals. With Lightning, fees dropped to near-zero, and transactions became nearly instantaneous.

Lightning functionality allows exchanges to keep fees to a minimum, for near-instant transaction speeds, as well as provides customers with an element of privacy as transaction happen on the 2^nd layer (off Bitcoin’s blockchain).

Bitcoin ordinals and so-called BRC-20 tokens have become the source of heated debate within the Bitcoin community as rising usage has competed for block space and spiked up transaction fees. Dune analytics shows a total of over 6.6M ordinals inscriptions on the Bitcoin blockchain to date, showing a huge spike beginning in the end of April.

Ordinal inscriptions, enabled by Taproot, allow users to attach text or images onto satoshis, the smallest unit of a bitcoin, with text-based inscriptions (called BRC-20 tokens) accounting for nearly all inscriptions presently in existence. These BRC-20 tokens are bought and sold as assets of their own (minted onto the Bitcoin blockchain), with roughly 15K in existence and an accumulative market cap of $520M. The BRC-20 token with the largest market cap, known simply as ‘ordi’, has a present market price of $16.55 and a market cap $348M.

The use of ordinals comes with a number of trade-offs. On one hand, they create a new source of revenue for miners. On the other, they create congestion for users wanting to transact on the Bitcoin base layer. For those hoping for wider adoption of Taproot (which ordinals require) and the Lightning Network (which allows users to nearly eliminate the high fees), Ordinals may be said to provide some benefit by pushing the usage of these features. Regardless, they remain a contentious issue, including between Bitcoin developers.

Crypto news for the weeks ahead

May 26

The US Bureau of Economic Analysis’ (BEA’s) release of March’s Personal Consumption Expenditures (PCE) numbers will be released. This is one of the primary indicators used by the FOMC when considering interest rate levels.

June 13

The Consumer Price Index data for May 2023 will be released – one of the indicators the Federal Open Market Committee (FOMC) watches when considering interest rate hikes.

June 14

The FOMC will be meeting. Futures markets are presently predicting no further rate hikes to be announced on that meeting.

Top 10 Crypto Summary

The market experienced a downward slide this week for nearly all of BNC’s top 10 digital assets by market cap. As has occurred in the past, the alt-coins followed BTC’s general movement. GLASSNODE’s most recent onchain report for Ethereum noted a significant withdrawal since the Shanghai/Capella upgrade. However, it concludes, that this had very little impact on market prices due in part to “the high demand for deposits seen during this period, offsetting unstaked and distributed ETH”.

Bitcoin Price Chart

BTC closed the week with the biggest fall amongst assets on the Brave New Coin market cap top 10. Active BTC addresses dropped to the lowest they have been since June 2021, towards the end of Bitcoin’s previous phase of high transaction fees.