Positive capital flows indicate a growing crypto market, suggesting that people are moving more wealth into the asset class than they are taking out. After a period of net negative 30-day capital flows, in October, crypto market inflows started rising, surpassing $26 billion on Thursday, December 28 – a level not seen for two years.
But what’s driving the influx of capital? Boosted by an optimistic turn in overall market sentiment in the final months of 2023, fund managers have been on a buying spree to meet demand for investment products with crypto exposure.
According to data from Glassnode , there has been more capital flowing into the crypto market than out on a 30-day basis since October 12. Based on the aggregate net position change of a basket of most dominant crypto assets, Glassnode’s metric tracks changes to the “realized cap” of major cryptocurrencies.
Because it excludes dormant coins from the analysis, this approach gives a truer picture of how much real capital exists in the overall market that analyses based on total market capitalization.
One key driver behind the trend appears to be the rising demand for crypto-based investment products. According to CoinShares , crypto investment funds registered net inflows for 11 consecutive weeks up to December 11.
With a few exceptions, most major crypto fund issuers closed 2023 with more assets under management than at the beginning of the year. Likewise, throughout 2023, major markets including the United States, Canada and Germany all registered net increases in the total value of capital invested in crypto funds.
Although Coinshares acknowledged a spike in demand for altcoin-focused investment products in December, throughout 2023, Bitcoin dominated the institutional investment landscape, accounting for the bulk of asset managers’ crypto purchases.
In the first month of 2024, that trend looks set to continue if the US Securities and Exchange Commission approves spot Bitcoin Exchange Traded Funds. Many analysts believe this will happen in the next week or so.
With major advantages over other crypto investment funds and trusts, ETFs could drive significantly higher demand for Bitcoin. Anticipating subsequent pressure on the Bitcoin supply, crypto services platform Matrixport recently forecast that ETF approval will be the catalyst for BTC to climb above $50,000 in January.