Published: April 19th, 2023
Whales, institutions, corporates and other large investors are bullish on Bitcoin again, with more than USD 114 million flowing into BTC funds.
A new report from digital assets firm CoinShares says big investors poured their millions into leading Bitcoin funds for fourth weeks running, in what company analysts call a ‘flight to safety’. The biggest beneficiaries of new inflows were established funds for accredited investors from firms like 21 Shares, 3iQ, and Grayscale.
BTC was the main focus by far, attracting USD 103 million in new investment. The growth happened against a wider market backdrop that has led to ‘very low volumes’ in Bitcoin trades generally, CoinShares said.
CoinShares noted in the report that improving prospects for crypto as an asset class was down to fears about the ‘ongoing challenges’ being experienced by traditional finance over the past three months.
Revisiting a trend first seen in early 2022, major investors are once again looking to Bitcoin as a ‘safe-haven’ investment. Confidence in ‘TradFi’ has been shaken in the aftermath of the collapse of Silicon Valley Bank, Signature Bank and Credit Suisse in Europe.
Ethereum, the second-place coin by market capitalisation, implemented its Shanghai blockchain upgrade on Wednesday, 12th April, enabling the withdrawal of staked ETH by network users.
Analysts predicted that more than USD 300 million of the coin would be sold-off in the aftermath of the upgrade, but ETH’s price has actually risen since Shanghai was implemented.
Perhaps buoyed by the surge in investor interest, Bitcoin’s price was holding firm at just above USD 30,000 at time of writing, the level it reached seven days ago.
In April of 2022, a previous CoinShares report found that crypto markets were losing ground, firming up an emerging consensus that the crypto winter would extend into summer and possibly beyond.
Total market cap had fallen to USD 1.4 trillion while BTC’s price was also sliding towards USD 30,000.
Whales reacted by using price volatility to shift more assets into Bitcoin, Ethereum, and exchange-traded instruments that derive their value from other cryptocurrencies. Unlike retail investors, ‘whales’ (institutions, hedge funds, and other corporate investors with large holdings) have the financial flexibility to weather market storms and emerge largely unscathed.
In the first week of May 2022, a report from CoinShares said that crypto investment products saw net inflows of around USD 40 million while BTC attracted net inflows of USD 45 million. It was a sign, they said, that investors were seeing a market opportunity to move into exchange-traded Bitcoin products at bargain-basement rates.
CoinShares tracked exchange-traded crypto instruments like Grayscale’s Bitcoin Trust (GBTC), which is invested in Bitcoin passively and moves more or less in parallel with BTC price movements. For example, on Monday 9th May, shares of GBTC were down 19 per cent over the previous five days, versus a 23 per cent drop in price for BTC.
‘It's worth noting that we haven’t witnessed the same spike in investment product trading activity as we would expect to see during extreme periods of price weakness,’ the forward to the CoinShares report says. 'The question is: does this mean the month-long run of negative crypto sentiment we’ve seen is finished?’
One reason mooted for the anomaly was the fact that price action which had tanked Bitcoin and Ethereum to depths some 50 per cent below their all-time highs was actually less drastic than falls seen in previous bear markets.
‘Compared to the deepest lows of past BTC bear markets, the current movements aren’t as bad. In June July 2021 BTC reached a drawdown of -53.3 per cent, and the crypto bear markets of 2015, 2018 and 2020 saw lows between –77 per cent and –85 per cent off their all-time-highs.’
What did increase in Spring 2022 was price speculation. A record amount of money, USD 4 million, flowed into Bitcoin short positions in April 2022. Investors created more ‘shorts,’ using derivatives like futures to bet on whether an asset would rise or fall in price.
That drove up the total value invested in short Bitcoin products to USD 45 million, a previous all-time-high. Despite that, the value invested in long Bitcoin positions was still far beyond the short money. As a percentage, CoinShares said the USD 45 million in shorts amounted to about 0.15 per cent of the USD 30 billion held in long Bitcoin products.
That indicated sustained crypto optimism, but other analysts said it would likely start to wane.
In a May 2022 newsletter, blockchain analytics firm Glassnode predicted that if prices fell to around USD 33,500 per BTC, it wouldn't be long before crypto investors found themselves facing the same headwinds seen in previous bear markets. Hours after Glassnode’s report was published, BTC fulfilled the prophecy, dropping as low as USD 30,517 before bouncing back slightly.
While CoinShares’ 2022 report analysed exchange-traded funds that offer indirect exposure to cryptocurrencies, Glassnode looked at blockchain wallet data where there was direct exposure to crypto market spot price moves.
By Glassnode’s calculations, more than 60 per cent of the BTC network had sustained unrealized losses.
‘These levels are associated with profitability achieved in the 2018,2019 and 2020 bear markets.’
Having spent the last four weeks in slow but steady decline, the two biggest cryptocurrencies by market capitalization, Bitcoin and Ethereum, were still down to about half of their all-time highs at time of writing.
Leader Bitcoin still commands the most market share. For second-place Ethereum, the story is broadly similar.
Ethereum owns around 21 per cent of the crypto market, with a capitalization of USD 248 billion, but at time of writing it was worth USD 2,064, or just half its former high reached in November, 2021.