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James Carter

April 6, 2023

Why Investors Continue Buying Bitcoin?

According to the most recent Digital Asset Fund Flows report that is published on a weekly basis by CoinShares, the pace of inflows has all but come to a halt one week after digital asset investment products saw their largest weekly inflow since July 2022, which was $160 million. This was the largest weekly inflow since July 2022.

The cryptocurrency data analytics company reported that “digital asset investment products witnessed inflows reaching a dismal US$2.5 million,” with trading volumes in investment products declining by 33% compared to the previous week.

Both of these data points show substantially less engagement in the cryptocurrency market in comparison to the previous week, as CoinShares explained further. “This was replicated in the larger bitcoin market, where trade volumes on trusted exchanges decreased by 61%,” CoinShares said.

As of Monday, the seven-day moving average of volumes was approximately $22.5 billion, which is significantly lower than the almost $46 billion that it was around the middle of March. The data was supplied by The Block.

The decrease in volumes comes at a time when Bitcoin’s price has been rangebound in the vicinity of $28,000 for some time now, while other cryptocurrencies have also been subject to conditions of rangebound trading.

Bitcoin Currently Enjoys Considerable Inflows

When you go further, you’ll see that people’s feelings towards Bitcoin are really more upbeat than you may think they are.

Inflows totaling $8.8 million were recorded for the cryptocurrency with the greatest market capitalization in the world, while outflows of $2.5 million were recorded for short Bitcoin investment instruments.

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The rise in the price of bitcoin has caused the dollar worth of total assets under management to reach $23.5 billion, which is “at their highest since the collaps of 3 Arrows Capital in June 2022,” according to a report published by CoinShares.

Smaller coins such as Litecoin, Tron, Solana, XRP, and Polygon all witnessed very tiny inflows, while Ethereum and multi-asset products saw a combined outflow of $5.8 million.

“inflows into short-Ethereum (US$0.5m) imply investors were apprehensive for the imminent Shanghai upgrade which will enable un-staking (yield distribution),” as stated by CoinShares.

The amount of bitcoin held by digital asset managers, which can include trusts and exchange-traded products, has been increasing over the past few weeks in the wake of the failures that were experienced by US banks in the middle of March, according to data from an alternative crypto analytics firm called CryptoQuant, which instead refers to data that is stored on the blockchain.

Here’s Why Bitcoin Could Be the Most Demanded Cryptocurrency Among Institutions

During the subsequent bull market cycle, Bitcoin might disproportionately dominate the demand from institutional investors.

Not only is Bitcoin the first, oldest, and most secure cryptocurrency in the world (at least according to its supporters), but many people also see it as the best hedge against a crisis in the traditional banking system. This is one reason why Bitcoin’s popularity is growing.

Another reason is that Bitcoin is not subject to the same stringent laws as many other cryptocurrencies are, although the majority of other cryptocurrencies are.

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Consider the Securities and Exchange Commission of the United States. Publicly, they have asserted that Bitcoin is a digital commodity and is therefore exempt from their regulatory scrutiny; nonetheless, they have characterized the majority of other cryptocurrencies as being securities.

Among them are cryptocurrency networks such as Ethereum, which provides a dividend to users who stake their Ether tokens and which the SEC most certainly considers secure because of this feature.

Yet the act of staking alone is not the only factor that can put a cryptocurrency at risk of being classified as a security.

Ripple found this out in 2020 when it was sued by the SEC for its distribution of XRP coins, which the SEC believes was an unregistered securities sale. The way it was first distributed is also a risk, as Ripple discovered after the lawsuit was filed against it.

Despite this, it does appear that Ripple will emerge victorious from this legal dispute in the near future.

At this time, it appears that Bitcoin is the only cryptocurrency that is safe to invest in (though, for the same reason, there are also very strong arguments that the likes of Litecoin and Dogecoin are also digital commodities).

Because of this, it’s possible that investors will choose to put their money into Bitcoin rather than its major smart-contract-enabled and proof-of-stake-powered layer-1 blockchain competitors, such as Ethereum, Cardano, Solana, and others.