Cryptocurrencies suffered a total outflow of value equivalent to $207 million during the first week of the year, according to a report by digital assets hedge fund CoinShares, indicating a persistent bearish outlook that may lead to an ever-heavier loss over the year.
This is the fourth straight week of outflows, now totaling $465 million and represents around 0.8 percent of the combined assets under management, based on the report (pdf) by James Butterfill. This trend has reversed the gains that began in August last year which led to almost $3.6 billion worth of funds being invested in the crypto markets.
“Bitcoin saw outflows totaling [$107 million] last week in what we believe was a direct response to the [Federal Open Market Committee] minutes which revealed the U.S. Federal Reserve’s concerns for rising inflation, and the fear amongst investors of an interest rate hike,” said the report published Monday.
According to analysts, Bitcoin’s market is mostly divided between long-time value-based digital investors, who believe that the asset will gain in value over time, and traders that are looking to cash in during market volatilities. Cryptocurrencies, like other speculative stocks, have performed well during the past years due to abnormally low interest rates.
A tightening monetary policy, with at least three proposed rate hikes happening over the course of the year, has spooked investors away from riskier assets like cryptocurrencies leading to the outflows. “Cryptocurrencies are likely to remain under pressure as the Fed reduces its liquidity injections,” Jay Hatfield, chief executive of Infrastructure Capital Advisors, said to Bloomberg. “Bitcoin could end 2022 below $20,000.”
The crypto market saw a surge later on in 2021, with Bitcoin hitting a record of almost $69,000. However, since then, the market has crashed with steadily declining fortunes, while Bitcoin currently hovers around the $41,000 mark, a dip of almost 40 percent.
“Over the last 4 weeks we have seen investment products representing up to 25% of total Bitcoin trading turnover, highlighting greater investor activity than usual,” from the CoinShares report.
Meanwhile, the second popular cryptocurrency, Ethereum saw a five-week run which saw $200 million in total outflows, including $39 million last week, a decrease in value greater than that of Bitcoin. Ether currently trades at $3,121, a dip of over 35 percent since its November high.
CoinShares said that multi-asset funds did not face a loss in value as much as individual currencies. Outflows from these funds totaled $37 million, amidst minor inflows for other currencies.
Litecoin, Solana, and Ripple were some of the assets that registered inflows, with $300,000, $500,000, and $800,000 respectively. Crypto-exchanges ETC Group and 21Shares recorded outflows of $88 million and $13 million.
Butterfill ended the report by saying, “Blockchain equities investment products did not escape the negative sentiment with outflows totalling [$10 million] over the week.”
As Bitcoin flirted below the $40,000 level on Monday, technical analysts like Julius de Kempenaer claimed that the cryptocurrency could see a further fall.
“On another break lower below [$40,000], there is a bit of support around [$37,000] but the main level to watch is around [$30,000 ($29,500–$32,000)],” he said to Forbes. “That is where major support is clustered.”
Blockchain data provider Glassnode said in a report on Monday, “A byproduct of consistent downtrends in price are [sic] the liquidation of confident long traders trying to catch a falling knife.”
“Short traders, who have not been punished for taking on increasing risk, may find themselves candidates for a near-term squeeze.”
CoinShares’ assets under management have fallen to $4.3 billion, according to Reuters.