Bitcoin posted its worst month since November, but network activity saw record highs

Published Fri, Jun 2 20239:30 AM EDTUpdated Fri, Jun 2 20231:01 PM EDT

Even though bitcoin just ended its first down month of the year, the network activity hit new record highs — and that's a good thing for Bitcoin and its investors. Bitcoin closed May down 7.9% after trading between $26,000 and $28,000. It was the cryptocurrency's worst month since November. However, Bitcoin's average daily network hash rate, which measures how much computing power the network uses to process transactions and is a key indicator of the network's health, increased for the fifth consecutive month. Investors want the hash rate to be larger. The more energy devoted to securing the network, the broader and more decentralized the network becomes. "Our sense is that network hashrate growth could slow over the coming months (possibly lagging BTC price appreciation), as funding and available rack space is hard to come by," Reginald Smith, an analyst at JPMorgan Chase, said in a note Thursday. "The aggregate market cap of the 13 U.S.-listed miners we track increased 5% to $6.7 billion." At the same time, Bitcoin's mining difficulty increased about 2% for the month and reached an all-time high. The difficulty algorithm is programmed in the Bitcoin code to stabilize the network by ensuring each coin is mined at a steady pace of 10 minutes. If there's too much competition, that means the blocks are coming in too fast and the difficulty needs to go up. By contrast, if there weren't enough competition, that would mean the blocks were coming in too slowly, and the difficulty would need to come down. Bitcoin's hash rate and mining difficulty tend to move in tandem with each other. Transaction fees on Bitcoin also surged in May with the help of Ordinals , digital content on Bitcoin similar to nonfungible tokens, with some technical differences. "Transaction fees, which historically run about 0.1 to 0.3 bitcoin per block mined, spiked to over 5 bitcoin per block mined in early May, which should drive modest C2Q23 earnings upside for the industry at large," Smith said. "The windfall seems to have been short lived as transaction fees have retreated to ~0.5 BTC per block mined in recent weeks, which is more consistent with historic averages." — CNBC's Michael Bloom contributed reporting.