Bitcoin inflows topped $116 million last week.
Big investors are diving back into the crypto waters after a bad month for bitcoin.
Often preferred by institutional investors, digital asset investment products saw inflows of more than $117 million last week, the biggest weekly gain since last July, according to data from asset manager CoinShares.
Bitcoin has by far been the biggest draw, and the funds tracking it are responsible for $116 million of that amount. Total crypto fund assets under management rose to $28 billion, up 43% from November lows, as the collapse of the FTX exchange shocked the industry.
“For the most part, people are feeling more confident than they were a month ago,” said Joseph Edwards, investment advisor at Enigma Securities.
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Bitcoin, the original cryptocurrency, surged nearly 40% in January, approaching its best monthly performance since October 2021 and its second-best January in over 10 years.
The rally, coupled with a possibly improving macro picture, is leading some investors to hope that the long crypto winter may finally be approaching spring. Many investors expect the US Federal Reserve to raise its benchmark rates by 0.25% this week, the smallest increase since the start of their tightening cycle last year.
“If peak inflation is indeed behind us, then long-term interest rates could decline as we approach the end of the inflation-targeted rate hike cycle,” analysts at Fidelity Digital Assets wrote in a note.
“This could signal positive momentum on the macroeconomic front for assets like bitcoin.”
Activity in the options market indicated that traders were rushing to bet immediately after the Fed meeting, a sign of the importance the market is placing on it, crypto liquidity provider B2C2 said.
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Cryptocurrency trading volumes are also on the rise, with average weekly volumes up 11%, according to CoinShares, indicating that traders are making a comeback after several months of lull.
However, cryptocurrencies are not out of the woods for a long time and the Fed could still spoil the party if a more hawkish tone takes this week.
The Fear & Greed Bitcoin Index of crypto data platform Coinglass, where 0 indicates extreme fear and 100 indicates extreme greed, is hovering at 61, the highest level since mid-November 2021, just after bitcoin began to recede from its peak.
“We may see a drop in the next week or two, how deep that drop will go is questionable,” Edwards said.
However, according to analysts at the Bitfinex exchange, there are other signs that the end of the bear market may be close. They said that short-term investors were selling their bitcoins for a profit, while long-term “hodlers” still stuck to their coin and did not contribute to selling pressure.
“Realized gains and losses for the entire market were recorded as positive in January 2023 for the first time since April 2022, a continuation of this trend will signal the final stages of a bear market,” they said.
Additionally, bitcoin’s “dominance” or share of the entire crypto market hovered around 41% this month, a level not seen since last July. Citi analysts say this mimicked a similar surge in Bitcoin dominance in April 2019, when the Bitcoin rally marked the bottom of the cryptocurrency market.
Other market watchers have said that equities, another relatively risky asset class, are likely to influence bitcoin prices next week, especially the performance of interest-sensitive technology stocks.
Bitcoin’s Nasdaq correlation is 0.94, the highest since May 2022, where a score of 1 indicates they are moving in sync.
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At the end of November, bitcoin broke its bonds with stocks and traded with a negative correlation of 0.7.
“It is very possible that Bitcoin could reach the next resistance level of $25,200 in the coming weeks,” said Rachel Lin, CEO of the Synfutures exchange. “Even if bitcoin falls again, there is a good chance that it will make a higher low on a larger timeframe.”
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