How Institutional Investors Are Moving the Crypto Asset Market

The bitcoin price rose gradually to $20,000 and then plummeted as soon as it surpassed that level and now remains range-bound between $19,000 and $20,000. In its monthly commentary, crypto exchange Coinbase said speculators are driving the recent sales that have been keeping bitcoin below $20,000, but long-term investors continue to hold onto their coin.

Coinbase defines long-term investors as wallets holding bitcoin for at least six months. Typically, many institutional investors hold their assets for the long term, although it’s unclear just how many institutions have held their bitcoin for at least six months.

Institutional Crypto Trends

There have been some interesting trends involving institutional crypto investors of late, not the least of which has been the increase in bitcoin shorts. For example, CoinShares said in its last weekly report that digital asset managers recorded $15 million in inflows last week, with total assets under management recovering from their lows over the last year and a half, rising to $36.2 billion.

Interestingly, bitcoin saw small outflows of $1.7 million, while bitcoin shorts increased by $6.3 million. Meanwhile, last week was the third straight week of inflows for Ethereum, amounting to $7.6 million. According to CoinShares, the inflows suggest a modest reversal in sentiment for ether, which had previously seen 11 straight weeks of outflows.

The firm cited the increasing probability of the Merge for the reversal in sentiment. Ethereum is set to shift from being proof-of-work to proof-of-stake later this year. The firm described the altcoin market as “remarkably inactive” this month, with outflows at a mere $0.3 million.

ProShares’ Short Bitcoin ETF a Hit

As far as crypto asset managers, ProShares saw the most inflows last week at $8.2 million, bringing its July inflows to $12.4 million and its year-to-date flows to $273 million. The firm now has $765 million in assets under management.

Of note, ProShares launched its short bitcoin exchange-traded fund toward the end of June, seeing tremendous response immediately. CoinShares reported early this month that $51 million of the $64 million poured into crypto funds in the last week of June were actually placed in short bitcoin products. Of that $51 million, $43.3 million went to ProShares. In fact, 80% of the funds poured into bitcoin in that last week of June were institutional investors shorting the cryptocurrency.

The week before ProShares launched its short bitcoin ETF, CoinShares observed record outflows from short bitcoin products, which it said at the time suggested that investors were close to peak bearishness. In its most recent weekly report, the firm said inflows to short positions are starting to cool.

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How Institutions Are Investing In Cryptocurrency

The above data points show how significant institutional flows in bitcoin and other cryptocurrencies have become. For years, institutional investors shunned the crypto markets for various reasons ranging from their newness to their extreme volatility.

However, things started to change in mid-2020, and institutions started to enter the market. Many crypto enthusiasts cited institutional involvement as a primary driver in the bull run that ran from late 2020 to late 2021.

Many institutions that have taken positions in cryptocurrency are staying in bitcoin, at least for now. As of June, 6.47% of all the bitcoin that will ever exist was held by institutional investors, which include ETFs like the new ProShares ETF that shorts bitcoin and sovereign governments like El Salvador.

Aside from buying bitcoin and holding it on their balance sheets, institutional investors are also establishing crypto positions in other ways. Some strategies include investing through spot ETFs that invest in bitcoin or bitcoin futures, as part of a retirement strategy, via decentralized finance in the form of smart contracts, and even non-fungible tokens and the metaverse.

Adding Macro Factors Into the Mix

Many factors drive institutional involvement in cryptocurrencies. For example, non-crypto macro factors have become critical components in institutional crypto purchases this year. Edward Moya of OANDA said in an email on Thursday that the 9.1% inflation reading for June was weighing on the crypto markets. He added that the Federal Reserve might have to consider hiking interest rates by a full point at its meeting at the end of the month and potentially cut rates next year at some point.

“Bitcoin remains a risky asset that could benefit from a Wall Street that is confident they have fully priced in Fed tightening,” Moya said. “The Fed may become a little more aggressive with rate hikes over the July and September meeting, but they could be shifting to a slower pace in November. Bitcoin is showing some signs of stabilizing, but sellers are eagerly watching to see if the June lows will hold.”

Staying Invested for the Long Haul

The fact that investors are staying in bitcoin for the long haul could signal a widespread view that the cryptocurrency will survive after the apparently Fed-induced bear market is finally over. Indeed, it’s a sign that displays a balance between supply and demand as speculators sell, a common occurrence during a bear market.

What do you think about the trends involving institutional investors buying bitcoin? Share your thoughts in the comments section below.