Hardly any news in the world of cryptos goes without producing ripples in the markets. One such report was recently published by JPMorgan and caught my attention. It said that net inflows into crypto markets this year have reached $12 billion. That is a substantial gush of money flow, which one certainly needs to sit up and take notice of.
First off, $12 billion is a large sum of money getting into the crypto space. This means that interest is still gathering for digital currencies. Most people would consider that the interest and hype around cryptos are gone since the big bull runs of 2021 and 2022, but this report proves otherwise. Although we are not in a massive bull market, there is a strengthening inflow of money into cryptocurrencies. This is a good sign for the long-term health of the market.
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Then there is the point that 'Spot bitcoin ETFs have seen $16 billion inflows since the ETFs' launch, but as suggested by JPMorgan, most of this money is not new.'.".
Instead, that is probably coming from inherent digital wallets from the list of exchanges. That is to say, it is more likely that people who already held Bitcoin will change their holdings in these new ETFs. This might seem at first blush simply like a reshuffling of the funds, but it has a few important implications.
First is that the money flow into ETFs may be the perception of a move to more regulated and inarguably safer investment vehicles. Many believe that ETFs are just a way to help them get into the Bitcoin investment sphere without all the hassle that comes with digital wallets and private keys. One could, therefore, see more investors take to the idea of crypto investing since it will make more sense to a broader audience, especially to those very conservative about the technicalities that come with owning digital coins.
Moreover, this shift from exchanges to ETFs has also translated into an apparent decline in bitcoin reserves on these exchanges. Indeed, as reported by JPMorgan, around 0.22 million bitcoins, equivalent to roughly $13 billion, have been withdrawn from exchanges since January. Such a decline in exchange reserves can impact the market in several ways. First, this can decrease the liquidity placed on the trade. As a result, a rise in price volatility can result.
On the other hand, it may also be the case that participants in bitcoin are turning into long-term investors, placing their funds in ETFs rather than holding them in an easily accessible form for trading.
Now, part of the reason is also that a lot of the money coming into crypto was not exactly new. This year's total inflow, counting futures and venture capital, is $25 billion. Once flows from existing wallets are factored into ETFs, we get a net new money coming into this market of around $12 billion. This may sound strong, but, in the grand scheme of things, it's not even as large as the inflows last year and far below the inflows that were in the previous bull market.
JPMorgan notes some skepticism that the pace of such inflows can be sustained throughout the rest of the year. They note that the current price of bitcoins looks steep against the backdrop of the cost of production by miners when compared to gold. As such, potential investors might be more circumspect about jumping in at such levels.
But I would feel that although skepticism is understandable, the fact that there is still so much money flowing into the market—even at high prices—shows underlying confidence in cryptocurrencies. People are still ready to invest, and with all the volatility and other risky elements, they find value in digital assets.
Posted Using InLeo Alpha