Big investors return to bitcoin

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(Our weekly analysis of the wild world of cryptocurrencies)

By Medha Singh and Lisa Pauline Mattackal

Jan 31 (Reuters) – Big investors are plunging into crypto waters again after a bumper month for bitcoin.

Digital asset investment products, often favored by institutional investors, saw inflows of more than $117 million last week, the biggest weekly increase since last July, according to data from asset manager CoinShares. .

Bitcoin was by far the biggest draw, with the funds following it responsible for $116 million. Total crypto fund assets under management rose to $28 billion, up 43% from November lows as the crash of the FTX exchange sent shockwaves through the industry.

“For the most part, people are more confident than they were a month ago,” said Joseph Edwards, investment adviser at Enigma Securities.

Bitcoin, the original cryptocurrency, soared almost 40% in January, approaching its best monthly performance since October 2021 and its second-best January in the last 10 years.

The rally, combined with a possibly brightening macro picture, has some investors hoping that crypto’s long winter might finally be drawing closer to spring. Many investors expect the US Federal Reserve to raise key rates by 0.25% this week – the smallest increase since the start of its tightening cycle last year.

“If peak inflation is indeed behind us for the time being, then long-term interest rates could decline as we near the end of the inflation-driven rate-hike cycle,” the analysts wrote. Fidelity Digital Assets analysts.

“This could signal positive momentum on the macro front for assets such as bitcoin.”

Activity in the options market indicated traders were rushing to place bets right after the Fed meeting, a sign of the importance the market places on it, crypto liquidity provider B2C2 said.

According to CoinShares, crypto trading volumes are also increasing, with average weekly volumes up 11%, indicating traders are coming back after months of slow activity.

The story continues

Still, crypto hasn’t been out of the woods for a long time, and the Fed could still spoil the party if it adopts a more hawkish tone this week.

Crypto data platform Coinglass’ Bitcoin Fear & Greed Index – where 0 indicates extreme fear and 100 indicates extreme greed – is hovering at 61, the highest level since mid-November 2021, just after bitcoin surged. started to retreat from its peak.

“We could see a drop in the next week or two, the depth of that drop is debatable,” Edwards said.

BITCOIN “DOMINANCE”

Nevertheless, there are also other signs indicating that the end of the bear market could be near, according to analysts at the Bitfinex exchange. They said that short-term investors were selling their bitcoin for a profit, while longer-term “HODlers” were still sticking to their coin and not contributing to the selling pressure.

“The realized profit and loss for the overall market was recorded as positive in January 2023 for the first time since April 2022, a continuation of this trend would signal the final stages of a bear market,” they said.

Additionally, bitcoin’s “dominance” or share of the total crypto market has hovered around 41% this month, levels not seen since last July. Citi analysts said this mimics a similar jump in bitcoin dominance in April 2019, when a bitcoin rally marked a crypto market low.

Other market watchers said equities, another relatively risky asset class, are likely to drive bitcoin prices next week, especially the performance of interest-rate-sensitive tech stocks.

Bitcoin’s correlation with the Nasdaq is 0.94, the highest since May 2022, where a measurement of 1 indicates the two are moving in parallel.

In late November, bitcoin severed its ties with stocks and traded with a negative correlation of 0.7.

“Bitcoin may hit the next resistance level of $25,200 in the coming weeks,” said Rachel Lin, CEO of Synfutures exchange. “Even if bitcoin goes back down, there is a good chance that it will hit a higher low over a longer period.”

(Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru, Alun John in London; Editing by Pravin Char)

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