Crypto fund flows turned negative last week, after strong inflows the week before, bringing total assets under management to their lowest since July 2021. In addition, both on-chain signals and the crypto derivatives market is painting a bleak picture for the near term.
According to data from the crypto investment and research firm CoinShares, crypto-backed investment funds lost a total of USD 141m in capital last week, a sharp reduction from the USD 274m that were added the week before.
The outflows last week mainly came from funds backed by bitcoin (BTC), which saw outflows of close to USD 154m. For other single-asset funds, changes were minor over the week, with ethereum (ETH) funds losing USD 0.3m, and solana (SOL) funds adding USD 0.5m.
The notable exception, however, were the so-called multi-asset funds, or funds that are backed by two or more cryptoassets. These funds saw inflows of USD 9.7m, with CoinShares suggesting investors see these funds as “safer relative to single line investment products during volatile periods.”
Explaining the moves in the market, analysts at Genesis Global Trading said in a note cited by Bloomberg that BTC is likely to stay in its current range between USD 29,000 and USD 31,000 “for the next couple of weeks.”
Others, however, said more downside volatility should be expected before the market once again moves higher.
“If the S&P falls some more, that should create one final flush and a great buying opportunity for bitcoin. There’s a lot of bearishness, and we should be approaching a time when you really want to buy into that in the next couple of months,” Fundstrat Global Advisors technical strategist Mark Newton was quoted as saying in the same report.
Meanwhile, crypto exchange Bybit and research firm Nansen said in its State-of-the-Industry report for May that it is unlikely there will be “a quick short-term recovery” in the crypto market judging from the percentage of stablecoins held by wallets, which it said climbed in April and May after falling in March.
“[…] the stablecoin percentage held by wallets actually climbed in relation to the declining holding percentage in March,” the report said, adding that the fall in March was “a precursor to a strong rebound within the broader crypto market.”
Moreover, the report also said that it has noticed a spike in activity on the Bitcoin network since March. The spike could be due to more big tech firms exploring the Bitcoin Lightning Network, the report speculated, noting that similar increases in network activity have also been seen on Polygon (MATIC) and Solana.
Avalanche (AVAX), on the other hand, saw a reduction in on-chain activity due to “a bulk of its on-chain activities shifting to its subnets,” the report said.
Lastly, crypto analytics firm Glassnode wrote in its weekly newsletter on Monday that BTC has now traded lower for eight consecutive weeks, making it the “longest continuous string of red weekly candles in history.”
It added that signals from crypto derivatives, including the implied volatility (IV) of BTC options, suggest there is still fear of further downside for “the next three to six months.” In addition, on-chain signals are also looking weaker with lower demand for blockspace on both the Bitcoin and Ethereum networks.
Given these factors, “the demand side is likely to continue seeing headwinds,” Glassnode concluded.