Crypto market: cautious retreat ahead of Ethereum upgrade and regulatory upheavals

General market conditions
On May 5, 2025, the market for cryptocurrencies is characteristically declining following a relative calm. The total market cap fell by 2% to approximately $2.94 trillion. Large cryptocurrencies like Bitcoin and Ethereum register conflicting movement with anticipation of Ethereum Pectra upgrade and information of regulatory reforms in the US and UK.

Bitcoin: short-term pullback before the next wave of growth

After a rapid run-up to more than $100,000 in early May, Bitcoin corrected to $94,563. Experts point to the main reasons for the setback:

Institutional investors engaged in profit taking, as they decided to realize a portion of their profits after they had reached the psychological milestone.

Reduced liquidity over the May holidays, which made the market more sensitive to substantial orders.

The threat of US regulation of cryptocurrency transactions, which has been debated in recent weeks.
In spite of the local correction, analysts are hopeful that Bitcoin (BTC) will continue to increase in the medium term since the fundamental drivers of the bull trend are still intact: institutional adoption and favorable macroeconomic factors.

Ethereum: preparing for Pectra update
Amid the ongoing market correction, Ethereum is on a downtrend, currently exchanging hands at $1,828.50. Traders and investors are largely concerned about the impending Pectra update that is set for May 7.
The upgrade is designed to increase scalability and lower costs on the Ethereum network, which should make a positive impact on the DeFi ecosystem and Layer-2 solution support.

Issues and Challenges

There are community concerns regarding the probability of temporary application interruptions caused by the migration to the new protocol.

There have been some concerns raised by developers regarding the possible weaknesses of smart contracts on older versions of the network.

Exchanges and wallets are warning users of potential delays in transactions during the time of upgrade.

Regulatory risks: pressure from the US and UK
The industry is under pressure from regulatory authorities:

The US SEC is weighing new rules for cryptocurrency platforms, especially the ones relating to derivatives and stablecoins.

The UK financial regulator (FCA) is going to impose new licensing conditions on cryptocurrency firms, which may cause the shutdown of small projects.

It is supported by some big banks, such as HSBC and Barclays, to put restrictions on trading cryptocurrencies for individual investors.

Market Impact This ambiguity can contribute to heightened volatility in the weeks ahead. Investors don’t exclude the scenario of huge capital outflows from the DeFi sector in case stricter regulations are implemented.

Expert opinion: cautious optimism

Short-term dips can be an ideal time to accumulate, said Crypto Insight analyst John Hernandez

“Until there is certainty about the regulatory environment, the market will be in a wary mood. However, the medium-term outlook is positive because of the emergence of new technologies and institutional demand.”

Other experts, like DeFi Pulse’s Emily Chen, point out the necessity of tracking the Ethereum upgrade and its implications for the DeFi sector:

“If Pectra expands network bandwidth and reduces fees, it will create new possibilities for Ethereum-based projects. But short-term disruptions can lead to short-term price declines.”

Altcoins: standing at a crossroads

Solana (SOL) – has pulled back 3% following a rapid rise, but finds support at $27.45.

Cardano (ADA) is becoming more volatile following the new Hydra smart contract integration.

Polygon (MATIC) remains stable because of the collaboration with a big financial platform.

What to expect next?

On May 6, we expect a report on the activity of the USDT stablecoin during rising capitalization, capable of affecting the market.

Pay attention to the stock price of cryptocurrency companies such as MicroStrategy and Coinbase since they are responsive to the direction in Bitcoin prices. After the Ethereum upgrade, there may be a short-term volatility surge, particularly in the decentralized finance (DeFi) sector. What actions should investors undertake? Do not use margin positions until the Ethereum upgrade is finished. Do not invest in illiquid altcoins until the regulatory environment becomes clear. Monitor the fresh SEC and FCA releases, as they could precipitate a sharp market pullback.