Early Crypto Investors Bet Bitcoin’s Bottom Is Near

With the crypto sector in the middle of the bear market, investors feel the time to buy may be coming soon.

FILE PHOTO: A neon logo of cryptocurrency Bitcoin is seen at the Crypstation cafe, in downtown Buenos Aires, Argentina May 5, 2022. REUTERS/Agustin Marcarian
FILE PHOTO: A neon logo of cryptocurrency Bitcoin is seen at the Crypstation cafe, in downtown Buenos Aires, Argentina May 5, 2022. REUTERS/Agustin Marcarian
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LONDON (Bywire News) - After months of bearish trajectory, crypto investors are starting to get hopeful that things might be changing. Listed crypto funds have been on the receiving end of an inflow of capital which despite only representing a portion of the market, could be one of the signs that suggest a reversal. This is a method favoured by institutional and retail investors attempting to follow suit.

According to CryptoCompare, the flows into funds have turned positive in May with a weekly average inflow of $66.5 million which shows a clear lifeline from the month of April where a weekly outflow of $49.6 million was netted. 

Ben McMillan, Chief Investment Officer of Arizona-based IDX digital assets, said "It's largely institutional, and to a degree retail investors, recognizing that the pain is already endured, and we're closer to the bottom than we are to the top,"

"If you're getting into crypto at these levels, a little near-term volatility could be worth a long-term payoff," McMillan added. "A lot of institutional investors are starting to look at crypto as a source of longer-term growth potential."

It’s important to consider that the main difficulty lies in determining if the flows will last and if they can transcend and replicate themselves through the rest of the markets. Market corrections tend to prompt people to reconsider strategies. Cryptocurrency’s growth has come to a shuddering halt in recent times, thanks to rising inflation and a focus on monetary policy. Bitcoin has lost an estimated half of its value from the all-time high in November as well as being down by a third in 2022 resulting in a consolidation around the $30,000 range for a month.

However, the data could suggest that a number of investors may be cautiously returning to the digital asset class with exchange-traded products that promise greater safety and liquidity. According to Kraken Intelligence, the assets that are under the management of Bitcoin futures ETFs have risen in the past week.  The assets of the ProShares Bitcoin Strategy ETFs have grown 6%, whereas the Global X Blockchain & Bitcoin Strategy ETF and VanEck Bitcoin Strategy ETF have risen over 3%. On the other hand, ProShares’ bitcoin fund saw outflows of $127million in April. 

Norway-based research firm Arcane Research found that global Bitcoin ETP holdings have created an all-time high of 205,009 $BTC within the first two days of June which could further suggest that the bullish nature could extend into June.

Analyst Vetle Lunde from Arcane Research said, "This is a promising sign for what's to come,"

Investor behaviour could still indicate an element of fear within the markets. So far, only Bitcoin funds have received inflows while other assets like Ethereum and other currencies have still been in a trend of outflows. This could be proof of investors being selective as well as cautious with their allocation of capital.

Despite some sort of relief, the crypto market isn’t proving fruitful for returns due to the market capitulation and according to Morningstar, U.S digital assets funds have lost on average 46% in 2022 and 22% alone in May. 

CryptoCompare tracked that all digital asset investment products lost money in May with Grayscale’s Digital Large Cap Fund, falling 38.5%

Jack McDonald, CEO of PolySign, claimed "Bitcoin has been rangebound in concert with the broader market activity of late, investors are looking for a bottom and are uncertain where that is,"

Grayscale Bitcoin Trust which has over $19 billion in assets, is currently trading at a 29% discount which indicates a low demand for the product. Despite some sort of recovery, people are still expecting inflows to remain stagnant until there is more clarity on the regulatory framework and the macroeconomics clears up.

"We're waiting for a high conviction bid to come back into the markets," added McMillan at IDX.

"There's still a lot of wood to chop on the macro front."

(Writing by Samba Jallow, editing by Tom Cropper and Klaudia Fior)

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