(Kitco News) – The outlook for the cryptocurrency market improved last week as digital asset investment products recorded their sixth-highest level of inflows in history, with $1.44 billion flowing into crypto funds.
The inflows brought the year-to-date (YTD) total to a record $17.8 billion, “far surpassing the 2021 inflows of US$10.6bn,” according to James Butterfill, Head of Research at CoinShares.
“Volumes remained low though at US$8.9bn for the week, compared to the 7-day average this year of US$21bn,” he added.
The U.S. accounted for the bulk of inflows, with the assets under management of U.S.-listed crypto funds increasing by $1.3 billion for the week, “although the positive sentiment was seen across all other countries, most notable being Switzerland (a record this year for inflows), Hong Kong and Canada with US$58m, US$55m and US$24m respectively,” Butterfill said.
“Bitcoin (BTC) saw the 5th largest weekly inflows on record with US$1.35bn, while short-bitcoin saw the largest weekly outflows since April at US$8.6m,” he noted. “We believe price weakness due to the German Government Bitcoin sales and a turnaround in sentiment due to lower than expect CPI in the US prompted investors to add to positions.”
Multiple altcoins also benefited from the uptick in sentiment, led by Ethereum (ETH), which recorded $72 million worth of inflows, the largest increase since March “and likely in anticipation of the imminent approval of the spot-based ETF in the US,” Butterfill said. “Solana, Avalanche and Chainlink saw inflows of US$4.4m, US$2m, and US$1.3m, respectively.”
“Last week, cryptoassets outperformed significantly on account of increasing evidence of seller exhaustion and favourable tailwinds from US monetary policy and US political developments,” said analysts at ETC Group. “Most notably, the odds for a Fed rate cut in September have significantly increased following weaker-than-expected inflation readings in June that have paved the way for earlier rate cuts in September.”
“At the time of writing, Fed Funds Futures pencil in a 91% chance of a Fed rate cut in September,” they said. “In addition, Trump's odds for the presidential election in 2024 have jumped to new highs following the failed assassination attempt over the weekend.”
“We saw increasing buying interest from global crypto ETP investors as well as global hedge funds that appear to have increased their market exposure to Bitcoin as well,” they added. “Furthermore, market sentiment is currently supported by the anticipated trading launch of the US spot Ethereum ETFs, which is expected to take place on the 18th of July this week, according to Bloomberg analysts.”
ETC Group noted that sentiment in the market has improved significantly over the past week due to multiple factors.
“Our in-house ‘Cryptoasset Sentiment Index’ has reversed sharply and signals a slightly bullish sentiment again,” they said. “At the moment, 8 out of 15 indicators are above their short-term trend.”
“Last week, there were significant increases in the BTC Futures Shorts Liquidation Dominance and the crypto ETP fund flows,” they noted. “The Crypto Fear & Greed Index currently signals a ‘Neutral’ level of sentiment as of this morning. It had fallen to ‘Extreme Fear’ readings last week.”
“Altcoin outperformance vis-à-vis Bitcoin has also significantly increased compared to the week prior, with around 85% of our tracked altcoins outperforming Bitcoin on a weekly basis, which is consistent with the fact that Ethereum also outperformed Bitcoin last week,” the analysts said. “In general, increasing (decreasing) altcoin outperformance tends to be a sign of increasing (decreasing) risk appetite within cryptoasset markets, and the latest altcoin outperformance could signal increasing appetite for risk at the moment.”
Overall, ETC Group noted rising bullishness in the crypto market after the recent flush-out that saw Bitcoin fall to a low of $53,500 on July 5.
“Over the past week, we saw that net buying volumes on Bitcoin spot exchanges continue to gradually increase from oversold levels as selling pressure subsided and buying interest gradually accelerated as well,” they said. “More specifically, net buying volumes on Bitcoin spot exchanges has increased to +353 mn USD over the past 7 days, which is the highest level in 2 months.”
“Whale exchange transfers had reached the highest level since May 2023 last week in an increasing sign of whale capitulation and overall seller exhaustion,” they added. “Whales are defined as entities that control at least 1,000 BTC. In fact, whales realized the highest number of losses in USD-terms last week on Friday since July 2023.”
“We think that this development is particularly bullish and also adds to the evidence that a tactical bottom is likely,” the analysts said. “Meanwhile, the Bitcoin mining hash rate has continued to stabilize since its low reached on the 28th of June and has increased by almost 50 EH/s since then. This is a sign of decreasing economic pressure on Bitcoin miners and decreases the risk of significant distributions.”
“In fact, the percentage of mined supply sold has decreased to the lowest level in 2024 to 95% over the past 30 days,” they concluded. “This means that bitcoin miners have started to hold more than they mine on a daily basis. This has also decreased selling pressure on the market.”
