Bitcoin Continues to Dominate Institutional Crypto Demand

In the Brief:

  • Investment inflows into digital asset products have slowed to $2.5m, down from $160m the previous week.
  • Bitcoin saw inflows of $8.8m, with short Bitcoin investment products seeing outflows of $2.5m.
  • Bitcoin's price has risen sharply since mid-March due to safe-haven demand and bets that the Fed is nearly done with tightening cycles.
  • Rising demand for Bitcoin trust and exchange-traded products suggests rising institutional adoption.
  • Bitcoin's regulatory clarity could make it more attractive to investors than other cryptocurrencies.

3 - 6 minute read

Bitcoin has been in the headlines recently, and not just because of its price. The latest Digital Asset Fund Flows report by CoinShares shows that the inflow of digital asset investment products has come to a halt after seeing their largest weekly inflow since July 2022 of $160 million. However, despite the decrease in trading volumes, Bitcoin has seen decent inflows. In this article, we explore the reasons behind the recent inflows and why Bitcoin could dominate institutional crypto demand.

The report shows that the trading volumes for Bitcoin have decreased by 61% compared to the prior week, indicating less participation in the crypto market. The seven-day moving average of volumes was around $22.5 billion as of Monday, down from around $46 billion in mid-March. This decrease in trading volumes comes at a time when Bitcoin has been trading sideways in the $28,000 area for some time.

Positive Sentiment for Bitcoin

Despite the decrease in trading volumes, sentiment is actually more positive than might be assumed for Bitcoin. The cryptocurrency saw $8.8 million in inflows, while short Bitcoin investment products saw outflows of $2.5 million. Additionally, price appreciation in Bitcoin has left the dollar value of total assets under management “at their highest since the collapse of 3 Arrows Capital in June 2022 at US$23.5bn,” CoinShares noted. This shows that investors are still bullish on Bitcoin despite the recent decrease in trading volumes.

The report also shows that Ethereum and multi-asset products saw a combined outflow of $5.8 million, while smaller coins like Litecoin, Tron, Solana, XRP, and Polygon all saw modest small inflows. Inflows into short-Ethereum (US$0.5m) suggest investors remained concerned for the upcoming Shanghai upgrade which will enable un-staking (yield distribution). These outflows and inflows indicate that investors are diversifying their portfolios and not just focusing on Bitcoin.

Rising Institutional Adoption of Bitcoin

Data from alternative crypto analytics firm CryptoQuant shows that the amount of Bitcoin being held by digital asset managers has been rising in recent weeks. Fund holdings were at 692,000 BTC (worth around $20 billion at current prices) as of Sunday, up from around 688,000 BTC on the 14th of March. Rising demand from investors in Bitcoin trust and exchange-traded products must have played a role in the price rise. A greater proportion of Bitcoin moving towards these sorts of investors suggests rising institutional adoption, which has in the past been touted as a major long-term driver of crypto price appreciation.

Bitcoin could disproportionately dominate institutional demand in the next bull market cycle. That’s not just because Bitcoin is viewed as the best bet against a traditional financial system banking crisis by many. It’s also because Bitcoin is largely in the all-clear when it comes to regulations, whereas many other cryptocurrencies are not. The US Securities and Exchange Commission has publicly claimed that Bitcoin is a digital commodity and so not under their regulatory oversight, but that most other cryptocurrencies are securities. These include crypto networks like Ethereum, which offers yield to stakers of its Ether token, something the SEC likely views as a security. Additionally, the way a cryptocurrency was initially distributed is also a risk, as Ripple found out in 2020 after being sued by the SEC over its distribution of XRP tokens, which the SEC claims was an unregistered securities offering.

What This Means for Traders

The recent inflows into Bitcoin suggest that investors are still bullish on the cryptocurrency despite the recent decrease in trading volumes. However, it’s important to note that trading carries a high risk and is not suitable for everyone. While Bitcoin could dominate institutional crypto demand in the future, investors should diversify their portfolios and not just focus on Bitcoin. Additionally, it’s important to keep up with regulations and understand the risks involved in investing in cryptocurrencies. As always, it’s essential to do your own research and seek advice from a financial advisor before making any investment decisions.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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