Is Bitcoin Bottoming Out?

Is Bitcoin Bottoming Out?

  • The raising of money by exchange-traded funds has been increasing since May.
  • Weekly inflows into these BTC mutual funds rose to $66.5 million on average.
  • During the first week of June, global bitcoin ETP holdings hit a high of 205,008 BTC.

Some crypto investors’ bets on Bitcoin (BTC) seem to indicate that the cryptocurrency is starting to bottom out. The volumes of money directed towards licensed crypto funds are growing, suggesting that the crypto winter may be ending.

However, cryptocurrency trading through these investment funds barely represents a small part of the market, although they are very representative of the industry in that both institutional and retail players participate.

Since May, average weekly inflows into these mutual funds have increased by $66.5 million, compared to a gray April that saw average weekly outflows of $49.6 million, according to CryptoCompare data cited by  Reuters.

In this regard, the investment director of IDX Digital Assets in Arizona, Ben McMillan, commented:

“It’s largely institutional and to some extent retail investors recognizing that the pain has been over and we’re closer to the bottom than the top.”
He added that “if you enter crypto at these levels, a little short-term volatility can pay off in the long run. Many institutional investors are starting to see crypto as a source of long-term upside potential."

It is still early for an accurate forecast as to whether this trend will spread to the broader market and whether BTC betting will continue to increase money flows into funds.

The truth is that this week BTC started on the right foot by trading on Tuesday at $31,531, according to CoinMarketCap, to then close the day falling and open on Tuesday with a loss of 5.85% to settle at $29,521.94 at 9:13 AM. (GMT-4).

Moment of Maximum Risk

Market analysts have warned that the crypto market is at a time of maximum risk, which also means higher profits, if indeed the bettors of the registered crypto funds are right and the crypto winter is giving way to a season of incessant increases for the digital currency as has happened before.

Since the highs recorded in early November 2021, when the cryptocurrency went above $69,000, largely due to market manipulation and comments from Elon Musk and others, Bitcoin has lost half its value.

However, from 2009 when it was worth less than a dollar until last year, BTC was the fastest growing and most profitable digital currency and investment asset. In the last decade, BTC saw growth of 20 million percent with a year-over-year average return of 230%, except for a few years like 2013 and 2018.

Investors Prefer BTC ETFs

Cryptocurrency investment flows appear to be fueled by exchange-traded products (ETPs) that offer investors greater liquidity and security. Kraken Intelligence reports that in the last week, the assets managed by Bitcoin futures ETFs have been increasing.

According to the report, the ProShares Bitcoin Strategy ETF assets grew 6%, while Global X Blockchain & Bitcoin Strategy ETF (BITS.O) and VanEck Bitcoin Strategy ETF assets increased 3%. The firm ProShares had just recorded an outflow of more than $127 million in April.

A recent report by Arcane Research revealed that in the first week of June, global Bitcoin ETP holdings hit an all-time high of 205,008 BTC.

For the analyst at the Norwegian research company Vetle Lunde, "This is a promising sign of what’s to come."

However, it is clear that investors are operating with great caution, choosing very well the safest crypto assets within the existing range of risk.

An important detail to analyze is that only BTC ETFs have been selected by investors. Funds focused on Ethereum and other cryptos continue to see only exits.

Grayscale Bitcoin Trust Is the Only Losing Fund

Despite the growing volume of investment that digital asset funds have received, this year some of them have delivered poor returns due to the crypto crash that 2022 brought. So far this year, US funds have suffered average losses of 46%, according to Morningstar data. Last month the registered losses reached 22%.

In May, all the investment products in crypto assets shown by CryptoCompare had significant losses. Over the period, the worst-performing product was digital large-cap fund Grayscale Bitcoin Trust, closing 38.5% down.

The performance of this product from Grayscale Investments, the world’s largest digital currency asset manager, pushed the company’s shares back and are currently trading 29% below net asset value.

PolySign CEO Jack McDonald explained that “Bitcoin has been fluctuating in line with broader market activity lately, investors are looking for the bottom and don’t know where it is.”

It is believed that this month there will be no shocks in the level of money inflows in BTC exchange-traded funds, despite the increase last month. Market sentiment remains relatively subdued pending clearer signals on Federal Reserve decisions on interest rates and planned industry regulations.

IDX's McMillan commented that they are “waiting for the offer to return to the markets with high credibility. On the macro front, there is still a lot to be split.”

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