Crypto Market Outlook in June – Forbes Advisors

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After a very turbulent month, cryptocurrency The market closed on a high note. Still, the crypto market environment is likely to remain challenging in June.

Cryptocurrency prices have been under intense pressure since early 2022 as investors pulled out of risky assets such as tech stocks. Market participants are increasingly concerned that the Federal Reserve will be unable to contain persistently high inflation without pushing the U.S. economy into recession.

FOMC minutes (Federal Open Market Committee) at its May meeting signaled that the Fed is prepared to raise interest rates by 50 basis points (bps) multiple times in the coming months. This suggests that risk aversion will continue in June.

Crypto Performance in May

Bitcoin (bitcoin) fell more than 20% in May, closing the month below $33,000.

Ethereum (Ethereum) down more than 30%, closing early below $2,000 Ethereum 2.0 transition from a Proof of employment consensus mechanism proof of stake model later this year.

The popular altcoin Cardano (ADA), RipplePolkadot and Dogecoin (Governor) both fell more than 30% during the broad cryptocurrency sell-off in May. Polkadot price fell more than 50% for the month.

The price of Bitcoin is down more than 32% so far this year, but BTC has outperformed most major altcoins. ETH is down 46% so far in 2022. The price of Polkadot is down 62% this year, while the price of Solana (SOL) is down 72%.

Crypto market bearish

According to Alkesh Shah, head of digital asset strategy at Bank of America, cryptocurrency prices are being pressured by three main headwinds: high inflation, rising interest rates and recession risks. However, he said there is no need for long-term cryptocurrency investors to panic.

“The market has corrected around 40% to 45% and the media is reporting as if this is the end of the industry and we are entering a crypto winter,” Shah said.

Instead, Shah believes that most major cryptocurrencies are likely to be stuck in trading ranges until the U.S. economic outlook improves.

According to Shah, the cryptocurrency could break out of its trading range for several good reasons. “Not only does the industry have assets with real cash flow, like ethereum, which had $10 billion in transaction fees last year, but we’re also seeing major institutional adoption,” he said.

Institutional buyers get help in May

Institutional investors may have been largely responsible for Bitcoin and Ethereum’s price rise in the last week of May.

About $520 million has flowed into cryptocurrency-backed funds so far in 2022, according to Marcus Sotiriou, an analyst at UK-based digital asset broker GlobalBlock. These inflows have been particularly impressive so far, given the negative price action in the cryptocurrency market this year, he said.

“This shows that institutions and high net worth individuals It has been a net buyer throughout the bear market,” Sotiriou said. “I think this is further evidence that, despite the current macro headwinds, Bitcoin’s supply is shifting from weak hands to those with long-term beliefs. “

Cryptocurrency market weakness has wiped out more than $1 trillion in value by 2022. Fortunately, Goldman Sachs estimates that cryptocurrencies account for only about 0.3% of U.S. household wealth.

Goldman Sachs said the concentration of large amounts of cryptocurrencies in the hands of a small number of “whale” investors suggests that the cryptocurrency sell-off has had little effect on the overall economy or the wealth of ordinary Americans.

Shifts in the stablecoin market

investor confidence stablecoin market Tested in May when Luna, which was associated with stablecoin TerraUSD (UST), completely crashed.

TerraUSD is an algorithmic stablecoin that relies on Luna to maintain its $1 value. Unfortunately, the sell-off in the crypto market caused UST to lose its peg to the U.S. dollar in May, with Luna all the way down to $0.

Terra had launched a new version of Luna as a replacement, but the collapse of the original Luna and UST wiped out $60 billion in total value and raised troubling questions about how stable the stablecoin really is.

The cryptocurrency market has a reputation for being extremely volatile and dangerous. The Luna debacle could undermine investor confidence in stablecoins, which are designed to retain value and are often considered one of the safest crypto investments.

The global stablecoin market is worth about $159.6 billion. Tether (USDT) is currently the largest stablecoin with a market cap of over $72.5 billion. Tether also briefly lost its peg to the U.S. dollar in May as investors pulled $7 billion from the stablecoin during the Luna crash.

The biggest winner of Tether’s instability may be the dollar coin (USD/USD). The dollar coin’s market cap grew from around $42.9 billion on May 1 to nearly $54 billion entering June. USDC provider Circle announced in late May that it would start providing weekly reports on its reserves and liquidity to reassure investors.

Cryptocurrency Markets to Watch in June

In June, Ethereum will take a major step in the cryptocurrency’s transition to a more energy-efficient proof-of-stake system.

Since April, the Ethereum network has been running two parallel blockchains, with the legacy chain running using Proof of Work and the test chain running through Proof of Stake.

Ethereum plans to bring the two parachains together in an update called a “merge” in August. In June, Ethereum plans to update its test network Ropsten in a key trial run of the merger.

The main risk for cryptocurrency investors in the coming weeks could be the possibility of a weakening U.S. economy.

On the inflation front, cryptocurrency investors should pay close attention to the Labor Department’s May U.S. Consumer Price Index (CPI) report due on June 10. The CPI data will update the market on the performance of the initial Fed data. Rate hikes are working to ease inflation.

June Fed meeting June 15 could also be a major crypto market mover. Investors expect another 50 basis point rate hike, but any update from Federal Reserve Chairman Jerome Powell on the health of the U.S. economy during a news conference could be an important market catalyst.

Finally, investors should monitor ongoing developments in cryptocurrency regulation. Securities and Exchange Commission (SEC) Chairman Gary Gensler said in April that the SEC plans to register and regulate crypto platforms, and the SEC recently announced that its cryptocurrency division has nearly doubled in size.