Jan 31 (Reuters) - Large investors are dipping their toes into the crypto waters again after a bumper month for bitcoin.
Digital asset investment products, often favored by institutional investors, saw inflows of more than $117 million last week, the biggest weekly increase since last July, according to data from asset manager CoinShares.
Bitcoin was by far the biggest draw, and the funds that tracked it were responsible for $116 million of that. Crypto funds' total assets under management have risen to $28 billion, up 43% from the lows hit in November when the FTX exchange crash shocked the industry.
"For the most part, people are more confident than they were a month ago," said Joseph Edwards, investment adviser at Enigma Securities.
Bitcoin, the original cryptocurrency, shot up nearly 40% in January, posting its best monthly performance since October 2021 and its second-best January in the last 10 years.
The rally, combined with a possibly bright macro picture, has some investors hoping that the long crypto winter is finally coming to spring. Many investors expect the US Federal Reserve. hike its benchmark rates by 0.25% this week, the smallest increase since it began its tightening cycle last year.
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"If peak inflation is behind us for now, then long-term interest rates may decline as we near the end of the inflation-focused rate hike cycle," analysts at Fidelity Digital Assets wrote.
"This could signal positive momentum on the macro front for assets like bitcoin."
Activity in the options market indicated that traders rushed to place bets right after the Fed meeting, a sign of the importance the market is placing on it, crypto liquidity provider B2C2 said.
Cryptocurrency trading volumes are also increasing, according to CoinShares, with average weekly volumes increasing by 11%, indicating that traders are returning after months of reduced activity.
Still, cryptocurrencies are not out of the woods for long, and the Federal Reserve could still spoil the party if it takes a more aggressive tone this week.
Crypto data platform Coinglass' Bitcoin Fear & Greed Index, where 0 indicates extreme fear and 100 extreme greed, hovers around 61, the highest level since mid-November 2021, just after Bitcoin began to retrace from its peak. .
"We could see a dip in the next week or two, how deep that dip is is questionable," Edwards said.
BITCOIN 'DOMAIN'
However, there are also other signs that the end of the bear market could be near, according to analysts at the Bitfinex exchange. They said short-term investors were selling their bitcoins at a profit, while longer-term "HODlers" were sticking with their coin and not contributing to selling pressure.
"Realized gains and losses for the entire market were recorded as positive in January 2023 for the first time since April 2022, a continuation of this trend would signal the final stages of a bear market," they said.
Additionally, bitcoin's "dominance" or share of the total crypto market has hovered around 41% this month, levels not seen since last July. Citi analysts said this mimicked a similar jump in bitcoin dominance in April 2019, when a bitcoin rally signaled a bottom in the cryptocurrency market.
Other market watchers said equities, another relatively risky asset class, were likely to boost bitcoin prices in the coming week, particularly the performance of interest-rate-sensitive technology stocks.
The correlation of Bitcoin with the Nasdaq (.IXIC) it is at 0.94, the highest since May 2022, where a measure of 1 indicates that the two are moving in unison.
In late November, bitcoin broke its ties to stocks and traded with a negative correlation of 0.7.
โBitcoin is likely to reach the next resistance level of $25,200 in the coming weeks,โ said Rachel Lin, CEO of Exchange Synfutures. โEven if Bitcoin falls again, there is a good chance that it will make a higher low in the longer period of time.โ
Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru, Alun John in London; Edited by Pravin Char
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