Total assets under management (AUM) for digital asset investment products rose a whopping 36.8% to $19.7 billion in January, the highest level since May 2022, CryptoCompare said in its latest monthly Digital Asset Management overview report. According to the crypto intelligence firm, “bullish sentiment was driven by liquidated short positions and a favorable macro environment, reflected in the most recent CPI announcement, which saw Bitcoin’s price reach $23,000; its highest level since August 2022”.
However, CryptoCompare noted that AUM is still 38.7% below its January 2022 level “due to a difficult year for Bitcoin, the broader cryptocurrency market and traditional assets”. It is widely agreed among analysts that the main trigger of 2022’s risk asset and crypto bear markets was a surprisingly aggressive hawkish shift in policy stance by the US Federal Reserve and other major central banks to stave off a stronger than expected. increase in global price pressure.
Greyscale situation Delicate despite the revival of the market
Despite the January revival in crypto market sentiment that also led to a recovery on crypto investment product AUM, CryptoCompare noted that the situation regarding Grayscale’s Bitcoin Trust (GBTC) remains delicate. While GBTC remains the dominant Bitcoin investment trust product in terms of AUM, with a market share of 69.3%, CryptoCompare noted that “the discount associated with Grayscale’s GBTC Trust has reduced only slightly” in January.
The GBTC discount refers to the percentage that GBTC shares trade below their net asset value. From the 31St of January, the GBTC discount was a staggering 42.29%, just slightly above the record lows hit last December in the 48% region. CryptoCompare explains that “the situation remains delicate” with Grayscale facing challenges including “the bankruptcy announcement of its sister company Genesis due to exposure to FTX in January, and the ongoing lawsuit against the SEC to turn its Bitcoin Trust into an ETF to convert”.
Will the Fed scare investors away from Crypto again?
The latest CryptoCompare report joins the latest weekly fund flow report from CoinShares. According to CoinShares, digital asset investment products saw their biggest inflows since July 2022 last week, with Bitcoin dominating and accounting for $116 million of the inflows. January clearly saw a resurgence of appetite among institutional investors for crypto investments.
But it looks like the revival will be put to the test this Wednesday. The Fed is scheduled to release its latest monetary policy decision at 1900GMT and is expected to raise interest rates by 25 bps to a 4.50-4.75% target range. That would mark another slowdown in the pace of rate hikes after the Fed raised rates by 50bp at its last meeting and 75bp at each of its previous four meetings before that.
Optimism about a less aggressive Fed as inflation shows significant signs of cooling and forward-looking economic indicators point to a likely US recession later this year was a key pillar of January’s rally. But macro strategists warn that market optimism may have gone too far. Markets expect just one more rate hike of 25 bps after today’s move and rate cuts later this year, but Fed Chairman Jerome Powell may signal more hikes ahead, and may push back against the idea of rate cuts later this year.
Traders should brace for the risk of an aggressive short-term pullback in crypto prices – for the longer-term bulls, this could present a new opportunity to buy the dip, given growing signs that the 2022 bear market is over.