Investors Continue Buying Bitcoin, Latest Fund Flows Report Shows – Here’s Why BTC Could Dominate Institutional Crypto Demand
According to the most recent Digital Asset Fund Flows data published on a weekly basis by CoinShares, the rate of inflows has all but stopped one week after digital asset investment products recorded their greatest weekly inflow of $160 million since July 2022.
The crypto data analytics company reports that “trading volumes in investment products fell by 33% compared to the prior week, with digital asset investment products saw inflows reaching a dismal US$2.5m.”
Both of the data sets show significantly less engagement in the cryptocurrency market than the previous week, according to CoinShares. “This was replicated in the larger bitcoin market where trade volumes on trusted exchanges decreased by 61%,” the company added.
The seven-day moving average of volumes was, in fact, about $22.5 billion as of Monday, down from almost $46 billion in mid-March, in accordance with data provided by The Block.
Reduced volumes coincide with Bitcoin’s recent sideways movement in the $28,000 region and other cryptocurrencies’ experience of rangebound conditions.
Bitcoin Enjoys Decent Inflows
Under the hood, Bitcoin sentiment is really more positive than could be expected.
By market capitalization, the largest cryptocurrency in the world had inflows of $8.8 million while short Bitcoin investment products saw outflows of $2.5 million.
The monetary worth of all managed assets has increased in line with the price of bitcoin, reaching “their greatest level since the failure of 3 Arrows Capital in June 2022 at US$23.5bn,” according to CoinShares.
Smaller coins like Litecoin, Tron, Solana, XRP, and Polygon all had moderate tiny inflows while larger coins like Ethereum and multi-asset packages witnessed a combined outflow of $5.8 million.
Inflows into short Ethereum (US$0.5m), according to CoinShares, “indicate investors were apprehensive for the impending Shanghai upgrade which will enable un-staking (yield distribution)”.
As a result of the US banking failures in mid-March, according to data from alternative crypto analytics company CryptoQuant (which uses the term “on-chain data”), the quantity of Bitcoin held by digital asset managers—which can include trusts and exchange-traded products—has been increasing recently.
According to CryptoQuant, fund holdings increased from about 688,000 BTC on March 14 to 692,000 BTC as of Sunday (worth about $20 billion at the current exchange rate).
Bitcoin’s price has increased significantly following a brief mid-March slump to depths below $28,000, reaching current levels above $28,000.
Analysts attribute the cryptocurrency’s sharp recovery to two factors: 1) demand for safe haven assets amid worries about a US (and global) bank crisis, and 2) bets that the Fed is almost done raising interest rates and may soon start lowering them, which has been negatively affecting US bond yields and the US dollar (and boosting crypto in general).
Increasing demand from investors in Bitcoin trust and exchange-traded products must have contributed to the price increase, according to CryptoQuant’s data.
More institutional adoption, which has previously been hailed as a key long-term driver of cryptocurrency price growth, is suggested by the fact that more Bitcoin is flowing in the direction of these types of investors.
Here’s Why Bitcoin Could Dominate Institutional Crypto Demand
In the upcoming bull market cycle, institutional demand may be disproportionately dominated by Bitcoin.
That’s not simply because Bitcoin, the first, oldest, and most secure cryptocurrency in the world (according to many supporters, at least), is thought to be the best defence against a banking crisis in the traditional financial system.
It’s also because, in contrast to many other cryptocurrencies, Bitcoin is mainly legal and in compliance with legislation.
Consider the Securities and Exchange Commission of the US. They have openly said that while most other cryptocurrencies are securities, Bitcoin is a digital commodity and is not subject to their regulatory control.
Among these are blockchain networks like Ethereum, which gives yield to holders of its Ether currency and which the SEC probably considers to be a security.
And it’s not just staking that raises the possibility of a coin being classified as a security.
As Ripple discovered in 2020 after being sued by the SEC for its distribution of XRP coins, which the Agency believes constituted an unregistered securities offering, there is also a risk associated with the way it was initially issued.
Yet, the odds now appear to favour Ripple winning this litigation.
Currently, it appears that Bitcoin is the only cryptocurrency that is in the clear (though for the same reasons, there is also a very strong argument that the likes of Litecoin and Dogecoin are also digital commodities).
Thus, investors might choose Bitcoin over some of its main layer-1 blockchain rivals like Ethereum, Cardano, Solana, etc. that support proof-of-stake and have smart contracts.