As the crypto winter continues into June, the first signs of a thaw are emerging, with some investors now betting that bitcoin’s slump is hitting a floor, judging by the money going into cryptocurrency funds, which represent only a slice of the market. market, but are popular with institutional and retail investors.
Fund flows into these funds turned positive last month, with an average weekly inflow of $66.5 million, a reversal from April, when they saw an average weekly outflow of $49.6 million, according to the website. CryptoCompare data.
“It’s a movement led largely by institutional and retail to some extent. They are recognizing that the pain has already been felt and that we are now closer to the bottom than we are to the top,” said Ben McMillan, vice president of investment. of the North American IDX Digital Assets.
“If you’re getting into crypto at these levels, short-term volatility could be worth a long-term reward,” he added. “Many institutional investors are starting to look to cryptocurrencies as a source of potential long-term growth.”
But it is difficult to know whether the flows now will persist or whether the nascent trend will be replicated across the market.
Many people will also think twice about entering the market again, having suffered heavy losses when cryptocurrencies were hit by concerns about global monetary tightening and rising inflation. Bitcoin has lost about half its value since its November peak, dropped by a third in 2022, and has been at a weak low of about $30,000 for a month.
Fund data indicates that some investors are returning to cryptocurrencies, albeit with the perceived safety of exchange-traded products (ETP) with the promise of greater liquidity and security.
Assets under management for several bitcoin futures ETFs have increased in the past week, according to Kraken Intelligence. Assets of the ProShares Bitcoin Strategy ETF grew by 6%, while those of the Global X Blockchain & Bitcoin Strategy ETF and VanEck Bitcoin Strategy ETF rose by more than 3%.
By comparison, the ProShares bitcoin fund had outflows of more than $127 million in April.
The uptrend extended into June, with global bitcoin ETP holdings jumping to an all-time high of 205,008 bitcoins in the first two days of the month, according to cryptocurrency research firm Arcane Research.
In an indication that investors are being selective and cautious, only bitcoin funds saw inflows, while funds focused on ethereum and other cryptocurrencies still saw outflows.
STILL IN RED
But let’s not forget that while the fortunes of some funds may be improving, most have shown poor returns this year as the cryptocurrency market has plummeted.
U.S. digital asset funds have lost 46% on average so far in 2022, posting declines of 22% in May, according to Morningstar.
All listed digital asset investment products tracked by CryptoCompare lost money in May, with the worst performer being Grayscale’s Digital Large Cap Fund product, down 38.5%.
Shares in Grayscale Bitcoin Trust, one of the largest bitcoin funds with more than $19 billion in assets, are trading at a 29% discount, the biggest discount since its inception and indicative of low demand for the product.
And despite the May rally, many market watchers expect flows into cryptocurrency funds to remain subdued until macroeconomic and regulatory risks become clearer.
“We’re waiting for a clear bet to get back to the markets,” said IDX’s McMillan. “There is still a lot of uncertainty on the macro front.”
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