The Ethereum share price tumbled 27% in May. Here’s why

Cryptos have come under pressure amid rising interest rates and a wider selloff of risk assets.

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Key points

  • The Ethereum price fell 27% in May 
  • Cryptos sold off alongside risk assets as investors mulled higher interest rates 
  • May's Terra stablecoin meltdown saw most cryptos fall sharply 

The Ethereum (CRYPTO: ETH) price is roaring back here on the last day of May.

The world’s number two token by market cap is up 10% over the past 24 hours, currently trading for US$1,999 (AU$2,776).

But even with that admirable last minute sprint, the Ethereum price is down 27% since the start of the month, according to data from CoinMarketCap. That puts the token down 47% for the calendar year.

Why did the Ethereum price tumble in May?

Ethereum runs the biggest blockchain network in the world. One that allows for the decentralised execution of smart contracts.

But its real world applications didn’t keep the crypto from falling hard in May.

A big part of the headwinds dragging the Ethereum price lower is the dawning reality that the past years’ rock bottom interest rates are going to head significantly higher to stem fast rising inflation.

Most cryptos sold off over the past month, as investors re-evaluated their holdings and many reduced their exposure to risk assets, like high growth tech shares and Ether.

In fact, the Ethereum price fall is largely in line with the 28% drop in the global crypto market in May.

Commenting on the crypto market’s struggles earlier this month, eToro’s crypto expert Simon Peters said:

The market is caught in the wider adversity of investment markets that are battling to decide where comfortable levels are in the wake of interest rate hikes designed to quell soaring inflation around the Western world.

This is indicative of the major shift in the presence of institutions within the crypto asset market, which now account for a much greater proportion of ownership and tend to bundle their decision-making on crypto with other major assets.

Un-stablecoin meltdown roils markets

As if interest rate hikes weren’t enough, 12 May also saw the implosion of a of a top ranked stablecoin.

When investors lost confidence in the algorithmic stablecoin TerraUSD (CRYPTO: UST) – which was meant to be pegged to the US dollar – and its supporting token, Terra (CRYPTO: LUNA), UST fell as much as 90% while Luna plummeted more than 99% over the coming days.

The ripple effects of the multi-billion dollars going up in virtual smoke hit most every crypto.

Ether was no exception.

In the 12-hour period following the initial panic over the Terra stablecoin collapse, the Ethereum price fell from US$2,432 to US$1,807, a loss of 26%.

As for what’s ahead for the Ethereum price in June, we’ll dive into that later this week.

Stay tuned!

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Ethereum. The Motley Fool Australia has positions in and has recommended Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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