Some investors are now betting that bitcoin is bottoming out, judging by the money flowing into publicly traded cryptocurrency funds, which only represent a portion of the market but are popular with institutional and private players.
Overall flows to these funds turned positive last month, with average weekly inflows of $66.5 million, a reversal from a dismal April when they saw average weekly outflows of $49.6 million, according to data provider CryptoCompare. .
“It is largely institutional investors and, to some extent, individuals, recognizing that the pain is already gone and that we are closer to the bottom than the top,” said Ben McMillan, chief investment officer of IDX Digital Assets, based in Arizona. †
“If you go into crypto at these levels, a little short-term volatility can be worth a long-term gain,” he added. “Many institutional investors are beginning to see crypto as a source of longer-term growth potential.”
However, it is unclear whether preliminary flows will continue or whether the incipient trend will repeat in the broader market.
Many people will also think twice about re-entering the market after being greatly shaken when crypto was rocked by concerns about global monetary tightening and rising inflation. Bitcoin has lost about half of its value since its peak in November, falling a third in 2022 and has been languishing at around $30,000 for a month.
Fund data nevertheless indicates that some investors are returning to crypto, albeit in the perceived safety of exchange-traded products (ETPs) with their promise of greater liquidity and security.
According to Kraken Intelligence, the assets under management of several bitcoin futures ETFs rose last week. Assets in ProShares Bitcoin Strategy ETFs were up 6%, while those in Global X Blockchain & Bitcoin Strategy ETFs and VanEck Bitcoin Strategy ETFs were up more than 3%.
By comparison, in April, ProShares’ bitcoin fund saw an outflow of more than $127 million.
The upward trend extended into June, with global bitcoin ETP holdings hitting a record high of 205,008 bitcoins in the first two days of the month, Norwegian crypto research firm Arcane Research found.
“It’s a promising sign of things to come,” said Arcane analyst Vetle Lunde.
In one indication, investors are being selective and cautious, with only Bitcoin funds seeing an inflow, while Ethereum and other crypto-focused funds still saw an outflow.
ALWAYS IN RED
But let’s not forget that while the fortunes of some funds may be tipping, most have had weak returns this year as the crypto market collapsed.
U.S. digital asset funds have lost an average of 46% so far in 2022, posting losses of 22% in May, according to Morningstar.
All of the publicly traded digital asset investment products tracked by CryptoCompare lost money in May, the worst being Grayscale’s Digital Large Cap Fund product, which fell 38.5%.
“Bitcoin has been constrained lately in concert with broader market activity, investors are looking for a bottom and don’t know where it is,” said Jack McDonald, CEO of PolySign, which specializes in cryptocurrency solutions. †
Shares of Grayscale Bitcoin Trust, one of the largest bitcoin funds with more than $19 billion in assets, are trading at a 29% discount to net asset value, around the lowest significant discount since inception, pointing to weak demand for the product.
And despite the rally in May, many market observers expect crypto fund inflows to remain subdued until macroeconomic and regulatory risks become more apparent.
“We are waiting for the offering to come back to market with high conviction,” McMillan added at IDX. “There is still a lot of wood to cut on the macro front.”