Minor Negative Sentiment in Crypto Markets as Outflows Drop to $9.7M

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Europe’s largest digital asset investment group, Coinshares, believes there is only “minor negative sentiment” in crypto markets after a grueling bear market in 2022.

As Bitcoin threatens to hit $18,000 for the first time since mid-December, Coinshares analysis reveals that global crypto outflows are beginning to decline. According to a recent blog post, Bitcoin only saw $6.5 million in outflows, indicating that sentiment “remains negative,” but fair.

“Digital asset investment products recorded outflows totaling US$9.7 million, underscoring the continued mildly negative sentiment that has persisted for the past 3 weeks.”

The chart below shows persistent outflows from crypto funds, consistent over the past six months, with only five weeks of inflows throughout the period. However, the outflows failed to accumulate any substantial volume as the numbers suggest that the inflows and outflows canceled each other out to remain reasonably flat.

Weekly streams of crypto assets

The largest weekly release in the past 52 weeks reached approximately $175 million, while the largest inflow reached approximately $350 million.

Eighteen weeks of exits versus seventeen weeks of entries in a tough bear market over the past 52 weeks.

However, Ripple’s XRP “turned the tide” as it saw $3 million in inflows over the past week, which Coinshares attributed to “the improved clarity of its legal case with the SEC”.

Besides XRP, other assets that avoided positive outflows included Binance (BNB Chain,) Litecoin and Polygon. These assets either saw nominal inflows or remained stable throughout the week.

Coinshares Fund Asset Flow

The bearish trend within the crypto has yet to be broken, as highlighted by the $1.2 million inflows into the “Short Bitcoin” funds.

Coinshares called the trend “a mild and continuous negative sentiment that has persisted for the past three weeks.” However, the first graph clearly shows that the increase in outflows seen during the FTX crisis has eased in the first week of 2023.

According to Coinshares disclosure, it currently has $1.4 billion in assets under management. Its crypto funds seek to serve those seeking exposure to crypto through traditional exchange-traded financial products (ETPs).

These investment vehicles may no longer be fully representative of overall crypto market sentiment as investors turn to cold storage following the collapse of BlockFi, Voyager, Celsius, and FTX.

Although crypto exchanges differ from ETPs in many ways, the custodial nature of the offering carries similar risks, as ownership of the underlying crypto assets does not lie with investors.

The flow of money into crypto asset funds has turned negative as a percentage of global assets under management within investment funds. Crypto asset funds peaked at around 0.25% of global fund flows at the end of 2020 before experiencing a drastic selloff throughout the 2021 bull market.

Percentage of crypto assets fund flow

Funds such as the Grayscale Bitcoin Trust have come under scrutiny from crypto investors in recent weeks due to trading at a hugely discounted price amid turmoil at its parent company Digital Currency Group.

However, on January 10, GBTC jumped 12%, causing the rebate to drop more than 20% in 2023. Whether the price action indicates that the fund is securing its position as a vehicle for essential investment for those with limited access to crypto is still up in the air.

Either way, the minimal impact of crypto ETPs on the overall ETP market shows how little institutional crypto exposure there is in the markets compared to traditional assets.

Total crypto assets under management across all funds currently stand at $22.5 billion, including $14.9 billion held with Grayscale.

In comparison, US ETFs lost $596.9 billion in 2022, 72 times more than the total value of assets under management for crypto products. The total value of ETPs worldwide reached $9.3 trillion in 2022 despite net outflows.

The crypto market is still far behind traditional financial assets in terms of impact on the global economy. However, unlike legacy financial products, self-custody is a fundamental tenet of crypto, and abandoning ETPs could become a familiar trend as the crypto industry matures.

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