Institutional Sentiment in the Cryptocurrency Market
Bearish sentiment among institutional investors in cryptocurrencies seems to be returning to normal, despite the outflow of millions of dollars from investment products of digital assets.
According to digital asset manager CoinShares, last week the outflow of funds from crypto-investment products amounted to $ 73,000,000, which was the fifth week of outflow of funds in a row. Bitcoin has undergone the largest outflow, among institutional investors.
“The outflow of Bitcoin amounted to $ 55 million, and in four of the last five weeks, the outflow amounted to $317 million,” the CoinShares report says.
Judging by the participation in the market space, Ethereum last week felt an outflow of funds in the amount of $30,000,000.
Outflow of institutional funds. Source: CoinShares
Recently, the outflow of funds from investment products of digital assets has been significant, but, apparently, after a large-scale sale in the previous week in the amount of $ 207,000,000, it is beginning to weaken.
Source: CoinShares
However, Solana has remained relatively unperturbed by the last few weeks of pullbacks. Despite the general downward trend, over the past three months, the outflow of funds has been observed for only two weeks.
” Solana remains a favorite among investors: last week the inflow amounted to $5.4 million, and the outflow has been observed for only two weeks since August 2021.”
Are institutional investors losing interest in Bitcoin?
Institutional investors have somewhat lost interest in Bitcoin, and macro factors contribute to this. Therefore, no significant recovery is expected in the short term.
Institutional investors are able to raise any asset, but at the beginning of 2022 they lost interest in Bitcoin, and macro factors also do not support the possibility of a big rise in the short term, says Omkar Godbole from Coindesk at Yahoo Finance.
Laurent Kssis, an expert on cryptocurrency exchange-traded funds (ETFs) and director of CEC Capital, said that there are few signs of renewed interest from institutional investors, so a big price rebound in the near future seems unlikely. “Assets under management and the inflow of funds into exchange-traded crypto products and ETFs are always a good barometer. At the moment, we have returned only $1 billion of inflows, compared to $4 billion, leaving these products in January,” Ksis said in an interview.
The ByteTree Asset Management report shows that since mid-December, the number of coins held by American and Canadian closed-end funds, as well as Canadian and European exchange-traded funds (ETFs), has decreased by 8812 BTC ($377 million).
The inflow of funds to the NYSE-registered ProShares Bitcoin Strategy ETF (BITO) fund has slowed down. “BITO is now holding less than 5,000 CME futures contracts for the first time since November, and its AUM has reached its lowest level since October 19, indicating a decline in interest in BTC exposure through futures ETFs,” Arcane Research noted in a study last week.
This ETF, which invests in Bitcoin futures listed on the Chicago Mercantile Exchange (CME), trying to mimic the price performance of the cryptocurrency, is vulnerable to contango losses.
The refusal of institutional investors to intervene should worry the bulls, who expect a rally from the recently passed psychological support level of $40,000.
Unfavorable macro
Crypto provider Amber Group stated that the continued rise in real or inflation-adjusted interest rates poses the greatest downside risk for Bitcoin and risky assets in general. “Bitcoin’s correlation with the stock market has increased,” Amber Group said.
Since mid-November, the yield on the 10-year US Treasury has increased by 50 basis points to -0.66%, according to data from the US Treasury Department. Bitcoin has declined by almost 40% over the same period.
The correlation between the BTC and the M1 money supply has grown to 0.77%, indicating a strong statistical relationship between them, said the analytical company IntoTheBlock in a research note published two days ago. This means a bearish outlook if the Fed starts raising borrowing costs every quarter, as the interest rate market expects.
The historical price of military-technical equipment. Source: Coinmarketrate.com
Non-directional trading is preferred
Griffin Ardern, a volatility trader at Blofin, a crypto asset management company, says it’s better for traders to bet on a spike in volatility by taking long positions in options than to predict and bet on where the price will go next.
“A long vega and a long gamma (buying call or put options or both options) are good solutions with some costs, since the implied volatility is too low for the selling side, which means an inadequate risk-reward ratio,” Ardern noted. “A long vega means having positions in options that will benefit from a spike in volatility.”
Implied volatility is investors’ expectations regarding price turbulence over a certain period, which has a positive effect on the option price. It is also a metric that tends to return to its mean value.
Experienced traders tend to buy call and put options at the same time when the implied volatility is cheap, and sell options when the metric is too high. Over the past four weeks, one-month implied volatility has dropped from 84% to 59% year-on-year, according to data source Skew.
Key support at $40,000
CEC Capital’s Csis predicts a retest of the $40k level if the cryptocurrency fails to establish a support point above $43,000 this week, and prefers hedging strategies to insure against a possible deeper fall. Investors often buy put options or sell futures as a hedge against a long position in the spot market.
One-month futures traded on the Chicago Mercantile Exchange (CME) barely earned a premium over the spot price, and futures on other exchanges traded at a premium of less than 5% year-on-year, far from the double digits seen in October and November. Perhaps this is the result of traders selling futures to hedge their risks.
According to Pankaj Balani, CEO of Delta Exchange, Bitcoin remains vulnerable to a deeper drop due to a lack of consumer demand. “We don’t see any bottom fishing at these levels, and interest in the risk of owning a Cue Ball in the region of $40,000 remains low,” Balani said. “We can retest the 40k and, if that happens, we may see a new round of sales.”
Today, Bitcoin is trading at $42,055, and the indicators remain generally bearish.