As the crypto winter creeps into June, the first signs of thawing appear. Some investors are now betting that bitcoin is bottoming out, judging by the money going into listed cryptocurrency funds, which represent only part of the market but are still popular with both institutional and retail players.
Overall flows to such funds turned positive last month with a weekly average inflow of $ 66.5 million, a reversal from a gloomy April when they saw a weekly average outflow of $ 49.6 million, according to data provider CryptoCompare.
“It’s largely institutional and to some extent retail investors who recognize that the pain has already been endured and we’re closer to the bottom than we are at the top,” said Ben McMillan, chief investment officer for Arizona-based IDX Digital Assets. “If you go into crypto at these levels, a little short-term volatility could be worth a long-term gain,” he added. “Many institutional investors have begun to view crypto as a source of long-term growth potential.” However, it is difficult to know whether the preliminary flows will continue or whether the incipient trend will be replicated across the wider market.
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Many people will also think twice before re-entering the market after becoming heavily clumsy as the crypto was hit by concerns over global monetary tightening and rising inflation. Bitcoin has lost about half of its value since a peak in November, it has fallen by a third in 2022 and has been languishing to around $ 30,000 in a month. Data from funds nonetheless indicate that some investors are returning to crypto, albeit in the perceived security of exchange traded products (ETPs) with their promise of greater liquidity and security.
Assets under management of multiple bitcoin futures ETFs have risen in the past week, according to Kraken Intelligence. The assets of ProShares Bitcoin Strategy ETFs have grown by 6%, while the assets of Global X Blockchain & Bitcoin Strategy ETF and VanEck Bitcoin Strategy ETF have increased over 3%. By comparison, ProShares’ bitcoin fund experienced outflows of over $ 127 million in April.
The bullish trend has stretched into June, when the global bitcoin ETP portfolio has risen to a record high of 205,008 bitcoin in the first two days of the month, the Norwegian-based cryptanalysis firm Arcane Research stated. “This is a promising sign of what’s coming,” said Arcane analyst Vetle Lunde. As an indication that investors are selective and cautious, only bitcoin funds have received inflows, while funds focused on ethereum and other crypto still experienced outflows. But let’s not forget, while the wealth of some funds could potentially show up, most have yielded poor returns this year as the crypto market has stalled.
U.S. digital assets have lost 46% on average so far in 2022 and, according to Morningstar, had a loss of 22% in May. All listed digital asset investment products tracked by CryptoCompare lost money in May, with the worst performer being Grayscale’s Digital Large Cap Fund product, down 38.5%. “Bitcoin has been spreading in conjunction with the broader market activity lately, investors are looking for a bottom and are unsure where it is,” said Jack McDonald, CEO of PolySign, which specializes in digital asset custody solutions for institutional investors.
Shares in Grayscale Bitcoin Trust, one of the largest bitcoin funds with over $ 19 billion in assets, are trading at a 29% discount to intrinsic value, around its steepest discount since its inception, indicating low demand for the product. And despite the increase in May, many market observers expect the inflow of cryptocurrencies to remain subdued until macroeconomic and regulatory risks become clearer. “We are waiting for a high-confidence bid to return to the markets,” McMillan added at IDX. “There’s still a lot of wood to chop on the macro front.”
(With input from Medha Singh and Lisa Pauline Mattackal)