Monday, December 5, 2022

Ethereum Attracting Massive Capital Inflow As Institutional Investors Increase Their Ether Positions

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  •  Following a 9-week dry spell, Ethereum products are seeing capital inflows.
  • In total, Coinshares crypto products received over $75 million of inflow last week. 
  • A reversal might be in the cards for the nascent market.  

According to CoinShares data, Ethereum products last week received a capital inflow of about $20.9 million. It appears that the spell of outflows might be coming to an end for the crypto market.

Nine-Week Outflow Spell Broken

Data from digital asset manager CoinShares shows that after a nine-week long period of outflows, the Ethereum network has recorded a capital inflow of $20.9M dollars for Ethereum products. It is the most recent indication that wealth asset managers are once again accumulating crypto assets.

In total, the CoinShares crypto products last week saw an inflow of about $75.3 million. Bitcoin led the pack, with investments in Bitcoin products sitting at around $25.1 million. Other funds managing multiple assets also experienced positive inflows, with Solana, Polkadot, and XRP among the names.

In the past month, the capital inflow has risen with each consecutive week. A total of $209 million has gone into investment products in the nascent market during this period. Several analysts believe that this is a strong indication that the almost 3-month long correction is about to reverse.

After major cryptocurrencies reached new all-time highs in November, the market slid into a massive correction that caused many of these assets to drop over 30% below their new highs. The price behavior has been attributed to institutional actors selling in order to book profits for the year. However, some pundits had expected that at the beginning of the year, there would be a massive institutional inflow, spurring a bull run.

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Termed the “first week of the year effect,” Alex Krüger told hodlers to “expect a strong crypto upmarket in early Jan driven by fund inflows. Then risk-off ahead of the next FOMC (Jan/26) if the next inflation print comes in too hot (Jan/12).”

However, this failed to happen, and the price of Bitcoin slid close to its August 2021 lows at some point in January. Though there has been a significant rise in institutional interest in the past couple of years, there still exist barriers that have limited institutional participation in the market.

Limitations To Institutional Participation In The Crypto Market

A survey conducted by wealth management firm Fidelity last year revealed that more than 50% of institutions in the US, Europe, and Asia had expanded their portfolios to accommodate cryptocurrencies. The survey also revealed that the remaining 50% looked likely to gain exposure to the nascent market in the future.

For a lot of the institutions still on the sidelines, the major concern remains the lack of regulatory clarity. Compliance remains a very important consideration for these corporations, and the present state of crypto regulations seems rather ambiguous in the United States.

Speaking with CNBC, Tom Lee, noted just how important this regulatory clarification was. He revealed that those in control of a majority of America’s wealth, about $100 trillion, remain reluctant to enter the market due to regulatory ambiguity.

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