Bitcoin had a dull May, but new use cases could trigger the crypto's next rally

By Frances Yue

Hello! Welcome back to Distributed Ledger. This is Frances Yue, reporter at MarketWatch.

Bitcoin had lackluster performance in May, closing the month down over 7%, according to Dow Jones market data.

The crypto has been trading in a tight range between $28,000 and $30,000 for the past several weeks, disappointing some crypto bulls that hoped the digital asset could rally as a potential hedge against the risk that Congress may not raise the U.S. debt ceiling in time.

Still, the Bitcoin network has been experimenting with some new use cases, which might lead to bitcoin's next major rally, according to Chris Martin, head of research and principal analytics engineer at Amberdata.

Find me on Twitter at @FrancesYue_ to share any thoughts on crypto or this newsletter.

The rise of BRC-20 tokens

Industry participants have been closely watching the rise of so-called BRC-20 tokens on the Bitcoin network, which could provide new use cases for the blockchain.

Introduced in March, BRC-20 token is an experimental token standard on the Bitcoin blockchain. It mostly emulates ERC-20, an Ethereum token standard that allows developers to create tokens that are compatible with the Ethereum network. Stablecoins such as USDT, USDC, and meme token Shiba Inu are all ERC-20 tokens.

Nevertheless, BRC-20 tokens have very limited functions compared to ERC-20 tokens for now.

During the past few weeks, BRC-20 tokens have driven a large part of financial activities on Bitcoin and contributed substantially to bitcoin miners' revenue through heightened transaction fees, analysts at 21Shares wrote in a Wednesday report.

Users have paid miners about 1,292 bitcoins to validate transactions linked to BRC-20 tokens, according to data from a dashboard created by @cryptokoryo on Dune Analytics.

BRC-20 tokens could be beneficial to the Bitcoin network, as they may attract more capital to the ecosystem from venture capitalists, according to Steven Lubka, managing director at Swan Bitcoin.

However, there are also concerns, Lubka said. Activities related to BRC-20 tokens have also driven up speculation on the Bitcoin network, such as the rise of some Bitcoin-based meme coins, Lubka noted.

"It's not likely that many projects are gonna have a future," according to Lubka. "We wouldn't prefer for bitcoin to be associated with those sorts of activities," Lubka said.

Bitcoin vs. JP Morgan stock?

Michael Novogratz, chief executive at crypto investment manager Galaxy Digital, said while bitcoin and ether have recently been rangebound with low trading volume, they are still "the two best assets to invest in over two years, three years, six months" on a risk-adjusted basis.

Bitcoin's volatility has recently come down, while it is still elevated compared to most other assets. The crypto has rallied over 60% so far this year, but is still down over 60% from its all-time high in November 2021, according to CoinDesk data.

"You shouldn't buy as much bitcoin as you do JPMorgan(JPM) stock but volatility adjusted it's been a much better bet than JP Morgan," Novogratz said in an interview Thursday with CNBC Squawk Box.

Bitcoin's tight range for the past few months "means you could pierce either side of the range and have a quick move," Novogratz said. He added that he expected bitcoin to rally once the Federal Reserve starts cutting its key interest rate later this year.

There have been small new buyers of bitcoin, but not many institutions, Novogratz said. "That's stopped by a combination of Sam and Gary," Novogratz said.

He was referring to Sam Bankman-Fried, former chief executive at bankrupt crypto exchange FTX, and Gary Gensler, chairman of the U.S. Securities and Exchange Commission.

After FTX's collapse resulted in billions of dollars in investors' losses, U.S. regulators have been doubling down its effort to increase oversight of the crypto industry.

Crypto in a snap

Bitcoin gained 2.9% in the past week and was trading at around $26,360 on Thursday, according to CoinDesk data. Ether declined 0.9% in the same period to around $1,805.

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-Frances Yue

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06-01-23 1453ET

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