Published: February 8th, 2023
Investors are shifting cash back into crypto funds after months of risk-off sentiment dominated the digital asset market.
A new report from CoinShares says that crypto funds saw inflows of more than USD 75 million the week commencing 31st January, the fourth consecutive week of increases. The funds attracting the majority of cash are established names like 3iQ, 21 Shares, and Grayscale, which are only open to established investors.
While it doesn’t signal a return to 2021’s crypto bull run is in the offing, its still a notable improvement on the tail end of 2022 and even early 2023. Investors were still taking money out of exchange-traded crypto products in January, thanks to the pain of an extended bear market and the implosion of the FTX crypto exchange.
According to CoinShares, the change in investor sentiment from even the start of 2023 has been sudden and impressive.
Total crypto assets under management have risen by 40 per cent year over year, and now amount to USD 30.2 billion—the highest point seen since September of 2022.
The company’s analysts said that crypto traders are focused mainly on the top contenders.
‘Bitcoin has attracted the lion’s share of investor interest so far, pulling in around USD 70 million, or 90 per cent of the total new money invested last week.’
CoinShares head of research Jim Butterfield told Bloomberg that ‘a more quiescent policy approach by the US Fed and a softer Greenback have been the main drivers behind improving crypto sentiment.’
Last year, the US Federal Reserve pushed interest rates up aggressively in order to grapple with inflation that tipped 40-year-highs. The central bank is still hiking rates, but at a slower pace. In 2022, the Fed raised rates by 75 basis points on four separate occasions. That changed in December 2022 when it raised rates by only 50 basis points, downshifting again in January of this year with a 25 basis-point rise.
Last February (2022) also seemed to signal a resurgent cryptocurrency market as prices for Bitcoin, Ethereum, and other leading coins began to rise.
In early February Bitcoin had shot past USD 43,000 while Ethereum was on the cusp of USD 3,000. That puts BTC up nearly 15 per cent from the previous week, according to CoinMarketCap. Bitcoin finished the month at around USD 37,800, rising from lows of USD 34,000 in late January.
Ethereum, meanwhile, moved back above USD 2,900 for the first time in a fortnight, with the price of ETH at time of writing reaching above USD 2,935. That put it in sight of the psychologically important level of USD 3,000, which it last reached on 18th January 2022. The rise happened in tandem with the broader cryptocurrency market cap, which had grown by close to 10 per cent since mid-January, and now sat above USD 1.9 trillion by the beginning of March.
Bitcoin and other digital currencies were hit by a sudden sharp decline when Russia ratcheted up geopolitical tensions and began its long-anticipated invasion of Ukraine. As NATO and other Western nations hit Russia with coordinated economic sanctions, crypto markets were initially buoyed by the turmoil.
As sanctions disrupted Russia’s banking and payments systems and affected valuations of the ruble, the case for decentralized currencies that operate beyond the effective control of governments got a notable boost.
Terra (LUNA) was the biggest winner initially, rising an eye-opening 25 per cent post-Invasion to reach a price above USD 94. Solana (SOL) also jumped by 18 per cent to reach USD 104.
By the end of February 2022, Bitcoin had risen back above USD 40,000. That represented a seven per cent rise from the previous week and a timeframe marked by war-driven market instability.
US equity markets dipped well into correction territory, with the S&P 500 and Dow Jones Industrial Average both falling by between one and four per cent.
As condemnation of Russia’s military invasion s intensified, and sanctions against the country and its rulers begin to take hold, markets began pricing in new risk expectations.
Some 36 hours after the Ukrainian invasion got underway, BTC bounced back to a price over USD 38,000. Numbers from Glassnode suggested that Bitcoin trades against the Russian ruble had reached a nine-month high.
Wider crypto markets also rebounded, with the total cryptocurrency market cap reaching USD 1.7 trillion on the same day. Total crypto market cap moved up to USD 1.9 trillion at the end of February 2022.
Other leading coins like Solana and Terra extended their bounce-backs. Terra’s price rose by 25 per cent while Solana jumped by 18 per cent.
Ethereum, the number two coin by market cap, had been slower to recover but was still on the up. It would eventually reach USD 3,000 in early March.
Ruble-Bitcoin (RUB/BTC) trading volume also surged to nine-month highs as the Russian fiat was initially pressurised by the greenback and Western sanctions.
Glassnode had ruble-denominated Bitcoin trades up by as much USD 1.5 billion on Thursday 24th February, the day Russia’s invasion began.
The majority of trades were happening on Binance, Kaiko analysts said. Their analysis also points to a rise in Tether-Ruble trading volume, which reached a seven-month high of 1.4 billion the same day.
The Ruble plummeted by 30 per cent against the greenback on Monday 28th February, before staging a partial comeback as the Russian central bank raised its key interest rate.
Numbers from CoinMarketCap last week had the total cryptocurrency market cap down by about five per cent in the 24 hours following Putin’s televised announcement of the conflict, pulling it below USD 1.6 trillion. Many of the losses happened in the immediate run-up and aftermath of the news, when the price of BTC plummeted from USD 37,000 to under USD 35,400.