The European cryptocurrency investment company CoinShares released its “Digital Asset Fund Flows Report” on February 6. The report revealed that investors are demonstrating a strong interest in digital asset investment products, with inflows totaling $76 million last week, marking the fourth consecutive week of inflows.
The research suggests that investor attitude has shifted for the beginning of 2023, with year-to-date inflows already standing at a total of $230 million. This expansion has resulted in a rise in the overall assets under management (AUM), which have just reached their highest level since the middle of August 2022, when they stood at $30.3 billion.
Bitcoin (BTC) continues to be the primary centre of investor attention, as seen by its weekly inflows of $69 million, which represent for 90% of the overall flows for the week. The United States, Canada, and Germany are the primary contributors to this increase in investment, with weekly inflows of $38 million, $25 million, and $24 million, respectively.
However, perspectives on whether or not this rise can be sustained are split, and short-Bitcoin inflows of $8.2 million have been recorded during the same time period. Despite the fact that these inflows are very tiny in comparison to long-term Bitcoin inflows, over the course of the last three weeks, they have contributed an additional 26% of the entire AUM. Despite this, the short Bitcoin trade has not garnered a significant amount of interest so far in 2018, as measured by the total assets under management for short Bitcoin declining by 9.2%.
The value of investment products based on alternative cryptocurrencies such as Solana (SOL), Cardano (ADA), and Polygon (MATIC) all saw slight losses. Ether (ETH) producers only got a total of $700,000 in inflows, despite the increasing clarity around unstaking.
Positive capital flows into products that invest in digital assets are indicative of investors’ increased optimism towards the market as a whole. Activity in alternative cryptocurrencies demonstrates, among other things, that the market for digital assets continues to be diversified and ever-evolving.
Bitcoin and other cryptocurrencies have consolidated gains from a recent rally that catapulted most digital assets a notch higher than a month.
Over the last 24 hours, Bitcoin price has little changed, still moving at around $20,290, according to TradingView. Apart from the largest cryptocurrency, Ether rose 1% to $1,519.19, while altcoins such as Solana and Cardano were both just above flat. Meanwhile, meme coins are more buoyant, with Dogecoin jumping 13% and Shiba Inu 4% higher.
Although the short-term picture looks relatively solid, cryptos generally remain vulnerable to another swing lower.
Bitcoin reclaimed its key price point on Tuesday afternoon, which is $20,000, triggered by weaker US dollars and accelerated by a wave of short-sellers—traders who bet against the cryptocurrency—being forced to cover their losses and purchase the token.
Source: TradingView
The crypto has appeared to stay in the $19,000 range but occasionally moved above that threshold in recent weeks. Whether the token’s value will continue to increase is a matter of people’s guesses.
While most crypto users are optimistic that Bitcoin has established its bottom after this year’s brutal market downturn, digital assets are still vulnerable because of the Fed’s monetary policy decision and negative sentiment in broader markets.
A looming catalyst for markets is the Fed’s tightening of financial conditions, including what is expected to be the fourth largest interest-rate hike, next week. Analysts anticipate that the Fed’s announcement next week could send Bitcoin trade below the $18,000 level.
Bitcoin’s vulnerability comes from a series of bad economic news, such as inflation data, among others, which have been turning market sentiment to the downside over several months in the recent past. Despite Bitcoin having clawed back its price since May this year, in recent the crypto has faired better than other assets, including stocks, gold, the European Euro, the Japanese Yen, the Chinese Yuan, and the British pound.
Over the previous month, Bitcoin’s recent resilience, compared to other assets, could be due to the crypto becoming a great conduit for U.S. dollars in nations that are struggling with their own currencies. Or Bitcoin’s resiliency could be anchored on long-term crypto investors who have remained unfazed amid recent plunges in the U.S. economy.
Bitcoin is holding steady, but it is not out of the woods yet. The end of the year is packed with macro events that could shift the tides downwards, including the midterm election, inflation reports, Federal Reserve meetings, the effects of Russia’s invasion of Ukraine, and a potential peak in U.S. dollar strength.
The latest data shows that although cryptocurrencies witnessed a massive market crash experienced in Q2 2022, the digital assets made some relative recovery in Q3 amid the ongoing bearing market conditions, according to the third-quarter report published by data platform CoinGecko.
Per CoinGecko, the report highlighted that such recovery is manifested based on the fact that the cryptocurrency market increased its market cap from a low of $903 billion in July to reach up to $1.2 trillion in August.
While Bitcoin struggled in Q3, it managed to outperform other commodities such as gold, oil and other traditional assets, except for the US Dollar Index (DXY), which tracks the greenback’s value against major currencies. However, from Year to date (YTD) perspective, Bitcoin still experienced the largest loss of -58% compared to all other asset classes. In other words, the cryptocurrency plunged more than 58% year-to-date and is now hovering around $19,113.66 per coin, according to data from CoinGecko. Bitcoin continues to trade mostly in lockstep with US equities but largely recovered compared to the equities market in Q3.
DeFi Rebounds
Data from CoinGecko has also disclosed that the Decentralized Finance (DeFi) market recovered by 31% in the third quarter, from $54.66 billion it was on July 1 to stand at $63.02 billion as of August 23 2022. It’s no news that the DeFi space has been facing it rough as data showed that the DeFi ecosystem lost 68.13% representing $155.79 billion in Total Value Locked (TVL) in the second quarter of 2022.
The rally can be traced to the crypto market’s slow but steady recovery, which is led by Ether, the native token of the Ethereum blockchain. Even though Ether (ETH) has plunged 33% to $1,330 from its quarterly high in mid-August, it is still up by 26% compared to Q2. The Ethereum blockchain accounts for $35.44 billion, or 56.24% of the TVL seen in the crypto space today.
Besides DEXs (decentralized exchanges) maintaining their status as the largest component of DeFi, they gained a significant rise in market share, increasing 36.8% to $10.9 billion, according to the data. This has been driven by the uptick in trading volume, majorly propelled by the Merge narrative, and with the continued popularity of the liquid staking sector. In 3Q, the liquid staking landscape almost tripled its market cap to $1.54 billion, and Lido, the market cap leader in that category, rose 264% to $1.60 within that period.
NFT Winter
Based on data from CoinGecko, sales of non-fungible tokens (NFTs) dropped significantly in the third quarter, as crypto investors struggle with the ongoing “crypto winter” and the demands for the highly speculative digital assets show little sign of returning. The NFT market witnessed a heavy hit in the past quarter, as it experienced a -77% plunge in total trading volume across the top 5 NFT marketplaces, OpenSea, Magic Eden, LooksRare, X2Y2, and CryptoPunks.
MagicEden was the only NFT marketplace that witnessed growth in September, doubling its MoM volume and dominance while the rest of its competitors continued to dip. With its recent expansion into the Ethereum blockchain and the launch of its headline-grabbing y00ts NFT collections, MagicEden gained significant dominance (from 9% → 22%) in 3Q. The Solana-based NFT marketplace appears to be eating OpenSea’s market share, which now stands at 60% from 90% in Q3. But it remains to be seen if MagicEden can sustain the momentum.
Stablecoin movements
Lastly, in the last Q3, the stablecoin economy’s market valuation dropped by 3% from $156.7 billion to $152 billion. The major 5 stablecoins are Tether (USDT), USD Coin (USDC), Binance USD (BUSD), Dai (DAI) and Frax (FRAX), as they have continued maintaining their positions, having no new entrants nor changes to their order.
However, data showed interesting movements in market cap within the top 5, with USDC dropping 16% or $9 billion after the US Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash. BUSD’s market cap grew the most, increasing by 18% or $3 billion because of inflows from USDC, triggered by Binance’s announcement on BUSD auto-conversion. USDT also witnessed a slight increase, possibly having absorbed some of the selloffs of USDC.
As of September, USDT crossed above $68 billion, USDC dropped to $49.39 billion, while Binance USD (BUSD) increased its market cap to $21.63 billion.
The US Federal Reserve is considering a higher-than-expected interest rate hike next month as inflation persists, according to the New York Times.
“Federal Reserve officials have coalesced around a plan to raise interest rates by three-quarters of a point next month,” according to the New York Times.
The current challenging market conditions come at a time when Fed officials remain unclear about when they could halt interest rate adjustments. The New York Times reported that market observers are betting that this trend will persist until at least December, or perhaps by a meeting next, based on economic projections and statements from the central bank.
Inflation indicates no signs of slowing as Consumer Price Index (CPI) figures show that rates are on the rise, a 6.6% up over the year through September, constituting a 40-year high. With another Fed meeting scheduled for early November, experts are predicting another aggressive rate hike. Even data projects that Fed officials may back a decision to raise rates.
In September, the Fed raised rates by 75 basis points, marking the fifth-rate hike of the year. At that time, the Fed indicated that it was unlikely to be the last rate rise of the year. On October 10, Vice Chair Lael Brainard addressed the issue of rising inflation and said Restrictive monetary policies from the Fed will persist.
Inflation is currently soaring because of various factors, including pandemic demand challenges, the war in Ukraine, and the supply chain’s struggle to keep pace. Despite multiple rate increases, the central bank has not yet been able to get inflation under control.
Last month, Bitcoin dropped below $19,000 shortly after the Fed announced another big rate increase – the fifth consecutive time the institution has raised rates this year. The impacts of each new Fed rate increase continue playing out across the crypto and stock markets as investors react to an uncertain economic environment.
Historic price charts show Bitcoin’s price dropped by at least 10% or more following the Fed meetings in March, May, and June. With these data, crypto investors could be in for another rollercoaster next month.
In an interview aired on Wednesday, market analyst Aaron Arnold projected a further fall of Bitcoin, stating that the current BTC price is already repeating the 2018/19 bear market. According to Arnold, Bitcoin is consolidating at around $19,000 to $20,00,0, just like it was consolidating near $6,000 in 2018.
The trader said while BTC had found a bottom at $6,000 per coin in 2018, the price eventually dropped 50%. Arnold said the risk is repeating itself in the current market. As a result, he stated that BTC could fall to support at $11,000 to $14,000 or drop to $6,000.
A key reason for this is due to the abundance of bearish indicators in the market, which include OPEC oil production cuts, sovereign debt crisis, high inflation, and dollar devaluation.
Fiat exchange volumes fell for the fifth time in a row as September ended, according to The Block’s Data Dashboard.
Among crypto exchanges that support fiat, FTX ranked highest in terms of volume in September with 24.6%, followed by Coinbase with 22.7 % and Upbit with 13%, the data showed.
While the August exchanges report showed $219 billion in total fiat exchange volume, the September report showed $210.6 billion, and the month-over-month change between the two months was -3.8%.
The months between May and June saw the largest decrease in the last five months with -20%.
The fall in crypto exchange volume and the broader crypto downturn have spurred many firms to execute layoffs in recent months.
In June, 18% of employees were laid off by crypto exchange Coinbase, and in the next month, Gemini did the same and cut its staff by 68 positions.
However, money flowing out of crypto-related funds has slowed.
A report from Bloomberg stated that the third quarter of 2022 has witnessed a slowdown in money flowing out of crypto-related funds.
The report added that the slowdown is a possible sign that many investors might have already withdrawn from the risky asset class.
Data compiled by Bloomberg Intelligence showed that $17.6 million was withdrawn by investors from crypto exchange-traded funds in the three months ending September 30.
By September 30, that number had fallen below the record $683.4 million withdrawn from such funds in the second quarter, the data analysis showed.
According to the report, the past two months had witnessed the most outflows. Upwards of $200 million were poured by investors into crypto ETFs in July.
The high degree of outflows in the second quarter was in relation to plunging cryptocurrency prices. The world’s largest digital asset based on market value, bitcoin, fell nearly 60% during the second quarter of 2022 and posted a record low of $17,785 on June 18. However, the cryptocurrency rose 3.7% in the third quarter.
According to The Block, trading volume on cryptocurrency exchanges jumped to $733 billion in September, up 16% month-on-month and marking the first significant increase since May of this year.
In the year’s first half, the cryptocurrency industry did not perform as well as expected, with a significant drop in spot and derivatives trading volumes across major exchanges.
Cryptocurrency spot trading volumes fell nearly 28% in June to $1.41 trillion, the lowest level since December 2020, as bitcoin prices tumbled, according to data compiled by CryptoCompare.
The Block’s legitimate trading volume index shows $629 billion in June, $633 billion in July and $630 billion in August.
Source: The Block
Katie Stockton, the co-founder of Fairlead Strategies, said:
“Volumes have declined given investor sentiment in cyclical bear markets. So, before cryptocurrency prices break out of the bear cycle (which may be a few months away), volumes are expected to be below average.”
As Bitcoin (BTC) continued to oscillate near $19,000 recently, CryptoQuant noted that more than 60,000 Bitcoins have flowed out of exchanges over the past three days, the highest amount of outflows in months, a sign that demand is re-entering the market. Santiment also reported similar data, noting that traders are likely to be confident in the fourth quarter.
CryptoQuant data showed 61,301 bitcoins flowed out of exchanges in the past three days, marking the largest outflow in recent months. “This is quite an important indicator and highlights signs of demand re-entering the market after months of declines,” CryptoQuant analyst Maartunn said.
The exodus of forced selling made cryptocurrencies partly resilient in the last month, according to Galaxy Digital Holdings founder Mike Novogratz.
Speaking at a conference in Singapore, Novogratz pointed out:
“We’re in this weird equilibrium where there are a few buyers, there are a few sellers, and there’s not that energy in the market like you’re seeing in the equity market or the bond market where you have to sell, right?”
Significant leverage has engulfed the crypto market, triggering a bearish run.
Nevertheless, Novogratz acknowledged that cryptocurrencies would take off again once the Federal Reserve (Fed) eased the aggressive monetary tightening, but this would not happen in a sustainable way until Web3 projects experienced mass adoption.
He added:
“Many crypto hedge funds won’t survive 2022’s rout in virtual coins. The implosion of Do Kwon’s Terraform Labs project was ‘heartbreaking’ and a lesson for the crypto industry.”
South Korean authorities have asked Interpol to issue a red notice for his arrest after Kwon denied being in hiding from law enforcement.
The crash of TerraUSD (UST) and Luna, which triggered the loss of $60 million of investor funds following the bearish outlook in the market, has made cryptocurrency platforms witness the least amount of engagement in two years based on the departure of weak hands. Market insight provider Santiment explained:
“If it feels like there are less people commenting and showing interest in crypto these days, your intuition is correct. Commentary hasn’t been this scarce since the end of 2020. Twitter has especially taken a hard fall in the past month.”
Meanwhile, Santiment acknowledged that profit-taking tendencies surfaced after Bitcoin closed the $20,000 mark and said:
“Many traders were apparently awaiting the $20k threshold to begin selling their bags. As Bitcoin crossed back above this psychological level, mass profit taking ensued.”
Therefore, time will tell how cryptocurrencies continue shaping up amid a tightened macroeconomic environment.
With the new week today, cryptocurrency prices have remained in the red.
Among tokens, Dogecoin’s price was trading about 7.80% lower at $0.05685, whereas Shiba Inu plunged more than 10% to $0.0000107. Multiple tokens have also declined, including XRP, Uniswap, Solana, Polygon, Avalanche, Binance USD, Polkadot, Litecoin, Apecoin, Cardano, Stellar, Chainlink, Tron, among others.
The declines of the major crypto values are still subject to overall economic metrics—ranging from the disappointing Consumer Price Index, the benchmark S&P 500 falls, to the prospect of a global wave of monetary tightening this week.
Investors are bracing for volatility as the Federal Reserve this week is expected to announce interest-rate hikes to fight price pressures.
The recent rise and fall of the Bitcoin price in the last few days is in line with market participants’ expectations. Cryptocurrency markets are likely to be volatile until the macroeconomic situation settles down to a more predictable pace.
The United States Bureau of Labor Statistics (BLS) released its inflation data for August, with the Consumer Price Index (CPI) coming in at 8.3% year-on-year (YoY). The market is concerned about rising inflation.
According to the released data, the BLS states that:
“In August, the Consumer Price Index for All Urban Consumers increased 0.1%, seasonally adjusted, and rose 8.3% over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.6% in August (SA); up 6.3% over the year.”
While we can say the inflation was reduced when compared to July, whose CPI reading was 8.5%, it is still well above the maximum target of 4%, which the Federal Reserve is targeting. The implication of these will be far-reaching, as the Feds may use this inflation data as the perfect basis to increase interest rates when the Federal Open Market Committee (FOMC) meets later this month.
That inflation is still sky high is bearish news for the stock and cryptocurrency market, both of which have started responding since the inflation data was released.
Bearish Crypto Response
As expected, investors have started removing money from the cryptocurrency ecosystem, with the combined digital currency market cap slipping below the $1 trillion benchmarks to $993.03 billion, down 7.12% at the time of writing.
The fall is being fueled by the broad-based slump in the price of Bitcoin (BTC), which shed 9.73% over the past 24 hours to $20,212.02, per data from CoinMarketCap. Ethereum (ETH) investors are also not focusing on the upcoming merge of its Beacon Chain with the mainnet as the inflation data overwhelms investor sentiment.
The second-largest cryptocurrency was down 7.67% to $1,591.34, dampening the proposed outlook of the coin as the merge approaches.
The Feds Chairman Jerome Powell has reiterated the readiness to continue hiking interest rates until the 2% target is reached. While this is a seemingly arduous task, making good on its promise can tilt the economy into recession, at which time the Feds will start injecting more money into the market to prop it up.
With more money in circulation at the time, the attractiveness of fiat will be reduced, and crypto may re-establish its lustre as a viable store of value by then.
Data from digital asset management firm Coinshares showed that outflows from cryptocurrency investment products reached $9.2 million last week, with the majority of inflows coming from short investment products.
Bitcoin (BTC) accounted for the lion’s share of these outflows with 11 million outflows, driving a 4-week streak of outflows throughout August.
However, declining Bitcoin short positions reached a record short inflow of $18 million, bringing total assets under management to an all-time high of $158 million.
Altcoins had small inflows, notably Solana and Avalanche, which each had a combined inflow of $500,000.
Source: CoinShares
Coinshares statistics show that capital inflows are distributed across regions. Canada’s inflows totalled $4.7 million, while the U.S.’s total inflows of $0.8 million were only a fraction.
Corresponding capital outflows from other regions are not particularly large. Brazil, Switzerland, and Germany saw total inflows of $3.2 million, $1.7 million, and $1.6 million, respectively.
According to a report by CoinShares investment strategist James Butterfill:
“In a similar fashion to last week, this week saw multi-year low weekly trading volumes totalling US$915m. Recent price declines have pushed down total assets under management (AuM) to $27.9 billion, their lowest point since early July this year, having begun the year at $64 billion. “
Bitcoin has gained 1.05% over the past 24 hours and rebounded by $$20,119.71, according to CoinMarketCap. Over the same period, Ethereum rose 5.45% to $1,659.
