(Kitco News) – Sentiment in the cryptocurrency ecosystem is rising as last week saw a total of $1.35 billion flow into globally listed digital asset investment products, bringing the 3-week run of inflows to $3.2 billion.
Exchange-traded product (ETP) trading volumes “also increased substantially, up 45% week-on-week to US$12.9bn, but representing a lower than usual 22% of the broader crypto market volumes,” said James Butterfill, Head of Research at CoinShares.
The U.S. continues to dominate on the flow front, with the assets under management of U.S.-listed ETFs increasing by $1.3 billion, while Switzerland and Canada recorded $66 million and $7.8 million worth of inflows, respectively. Brazil and Hong Kong saw minor outflows totaling $5.2 million and $1.9 million, respectively.
“Bitcoin saw US$1.27bn of inflows last week with short-bitcoin ETPs seeing further outflows of US$1.9m, bringing outflows since March to US$44m, representing a massive 56% of assets under management (AuM) — highlighting enduring positive sentiment since the April halving event,” Butterfill said.
He added that the outlook for Ethereum (ETH) “seems to have turned a corner,” as last week saw another $45 million flow into Ethereum ETPs, pushing it past Solana to become the altcoin with the most inflows year to date at $103 million.
“Solana also saw inflows last week totaling US$9.6m, but now lags Ethereum with US$71m inflows YTD,” Butterfield said. “Litecoin was the only other altcoin to see inflows over US$1m, with US$2.2m last week. Blockchain equities, in contrast to tokens, continue to suffer with outflows of US$8.5m last week, despite most ETFs outperforming world equity indices.”
Bitcoin’s bounce back from a low of $53,500 on July 5 has led to a resurgence in sentiment, according to André Dragosch, Head of Research at ETC Group, who noted that “Cryptoasset Sentiment decoupled from traditional financial market sentiment more recently as major cryptoassets continued to operate completely unaffected by the latest global IT outage.”
“Last week, cryptoassets decoupled from traditional financial assets such as equities on account of the global IT infrastructure outage caused by the faulty CrowdStrike software update,” he said. “An estimated 8.5 million Microsoft Windows systems crashed and were unable to restart after an incorrect security software update was released by American cybersecurity company CrowdStrike on July 19. The biggest outage in the history of information technology was brought on by this, according to some reports.”
“This led to widespread global disruptions in transportation and financial sector operations that weighed on traditional financial markets,” Dragosch added. “In contrast, the global IT outage buoyed crypto market sentiment on account of the fact that major cryptoasset networks like Bitcoin continued to operate completely unaffected. This resulted in a decoupling of Cryptoasset Sentiment from Cross Asset Risk Appetite.”
“We think that this outage has made more investors aware of the meaning of a single-point-of-failure and the benefits of decentralized blockchain technology that underpin cryptoassets,” he said. “Moreover, although it has to be emphasized that this latest outage was not the result of a cyber attack, the IMF has just recently reiterated warnings that both the frequency and costs of cyber attacks has been rising globally, which poses a threat to financial stability.”
Dragosch said that Bitcoin and other digital assets “may offer a pristine hedge against these kind of risks, which is also supported by the latest outperformance.”
Dragosch also expects sentiment to continue to improve following the official trading launch of Ethereum spot ETFs in the U.S. “Bloomberg analysts expect a launch to happen tomorrow (23rd of July) barring any unforeseeable last-minute issues,” he noted. “We expect a significant impact of these ETF flows on Ethereum’s performance post-trading.”
Overall, ETC Group said sentiment in the crypto market is rising, implying a promising second half of the year.
“Our in-house ‘Cryptoasset Sentiment Index’ has continued to climb and signals a slightly bullish sentiment,” Dragosch said. “At the moment, 9 out of 15 indicators are above their short-term trend.”
“The Crypto Fear & Greed Index has also reversed sharply and currently signals a ‘Greed’ level of sentiment again as of this morning,” he added. “Performance dispersion among cryptoassets has increased slightly again but remains at low levels. This means that altcoins are still very much correlated with the performance of Bitcoin.”
Crypto Fear & Greed Index. Source: Alternative
Dragosch also noted that “Altcoin outperformance vis-à-vis Bitcoin has declined again compared to the week prior, with only 10% of our tracked altcoins outperforming Bitcoin on a weekly basis, which is consistent with the fact that Ethereum also underperformed Bitcoin last week.”
“In general, increasing (decreasing) altcoin outperformance tends to be a sign of increasing (decreasing) risk appetite within cryptoasset markets and the latest altcoin underperformance is a signal of decreasing appetite for risk at the moment,” he said. “Meanwhile, sentiment in traditional financial markets, as measured by our in-house measure of Cross Asset Risk Appetite (CARA), worsened and decoupled from the improving Cryptoasset Sentiment.”
