The Inflow of Crypto Funds
A steep rise in crypto investments following capital inflow by investors results in the prices of crypto stocks rapidly increasing. All those who purchased the crypto assets at a lower cost would benefit greatly from these profits.
The crypto market is highly volatile. Daily price fluctuations are often hard to track, making crypto asset space a high-risk, high-reward market. The last few weeks were a testament to crypto investments’ high-reward portion.
The Big Bull
With over $120 million invested in digital assets over the course of one week, Bitcoin saw an inflow of crypto funds for seven weeks, while Ethereum booked their most significant gains in 13 weeks. The massive investment inflow was just after a successful week, with crypto investments amounting to over $30 million. Bitcoin saw inflows of $95 million within the week alone, and Ether investments increased by $25 million.
The last three weeks of February witnessed a Venture Capital investment in crypto assets. Another $400 million was later invested by more Venture Capitals as well. In the first two weeks of March, $3 billion worth of crypto inflows were booked.
What was the Biggest Contributor?
Despite the geopolitical tensions, the high volume of inflow in crypto funds came as a surprise. Most investors opt for risk-averse investments in such global situations. However, the crypto market stood its ground, outperforming traditional financial instruments, establishing the core of decentralisation that negatively correlates with traditional financing. On the one hand, Bitcoin rose 12%, Ether increased by 9%, but on the other hand, S&P 500 could only see a 3% increase while the market collectively dropped with the news of the growing tensions between Russia and Ukraine.
Since the onset of the pandemic, more and more investors are moving to digital assets as opposed to real estate investments. The decentralised nature of crypto also makes it a lucrative investment during such times.
The Events That Followed
The celebrations of the all-time high and massive inflow of crypto funds were short-lived as the very next saw a steep decline, almost washing away the increase of the last seven weeks. Post the announcements of regulations being made more stringent around crypto, Bitcoin witnessed an exit of around $70 million, and Ether saw $50 million in outflows. However, other popular coins like Solana, Polkadot, Ripple were more or less stable, booking much lower outflows.
The outflow could be attributed to the decentralised nature of the crypto market. Lack of regulations and a considerable risk are exhibited because many took advantage of the profits booked in the six weeks and chose to exit by selling their crypto investments.
In a way, history repeated itself in just four months.
What happened in December?
After a 17-week inflow in crypto funds, the crypto market witnessed a huge outflow of funds amounting to $142 million by the second week of December. The massive sell-off was impending, following the trends of 2020, where there was an outflow of $6.7 billion compared to the inflow in crypto investments amounting to $9.5 billion.
In December 2021, the Bitcoin price dropped 6% within one week because of outflows amounting to $89 million. However, it wasn’t the worst sell-off Bitcoin saw. Bitcoin stabilised before breaking its record of $150 million outflows in June 2021.
The volatile crypto market is learning from its past trends. An inflow and outflow cycle repeats itself every few months, exposing crypto investments to rapid price variations. However, the crypto market follows a high-risk, high-reward setting and has shown signs of stabilising quickly after a downfall in the past. While experts are always looking for regulations that might impede the crypto space, the exponential innovation in deep tech drives the long-term value from crypto assets.
Investors must stay vigilant and assess their positions and risk appetite with their crypto funds while making investments without getting swayed by the hype or the short-term movements.
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