The first phase of bitcoin The recent drawdown has not caused panic among institutional investors, according to crypto asset management company CoinShares.
Professional allocators modestly reduced their exposure but largely maintained their positions compared to last year. Advisors reduced their holdings while hedge funds shrank along with broader leverage reduction and shifting opportunities in other markets, the cryptocurrency investment manager said in a report on Tuesday.
Longer duration investors continued to accumulate. “Endowments, pensions and sovereign bonds continued to rise quietly,” wrote analyst Matt Kimmell.
Bitcoin has struggled to regain momentum since hitting a record high near $125,000 in early October. The world’s largest cryptocurrency was trading around $72,370 at the time of this publication.
Crypto markets have performed subdued in recent months as a combination of macroeconomic and market-specific pressures weighed on prices. Higher interest rates and a stronger dollar have dampened appetite for risk assets, while leveraged positions built earlier in the rally have been unwound. At the same time, profit-taking by long-term bitcoin holders and uneven flows into spot exchange-traded funds (ETFs) have had limited momentum, leaving the sector struggling to regain a sustained upward trend.
Even though Bitcoin fell about 23% during the period, global Bitcoin ETF flows remained positive, suggesting that the selloff in the fourth quarter was driven more by long-time holders taking profits than by new institutional money leaving the market, Kimmell said.
Historically, cryptocurrency bear markets have redistributed supply from short-term traders to long-term holders. According to Kimmell, the emergence of ETFs now offers a new way to see whether institutional capital follows the same pattern.
So far, the data points in that direction. A quarterly decline of about 25% did not trigger broad institutional capitulation, the report said, and most declines in assets under management reflect price movements rather than large investor outflows.
Still, CoinShares cautioned that the sample size remains small. The firm said the real proof could appear in upcoming regulatory filings, which will capture institutional behavior during sharper moves, including bitcoin’s plunge toward $60,000 and a 17% drop in a single day.
Bitcoin and the broader crypto market rose this week, bouncing back after weeks of choppy trading. The rally was driven in part by renewed risk appetite across markets and continued demand for bitcoin ETFs, which helped the largest cryptocurrency regain momentum and lift major altcoins along with it. Traders also pointed to short covering and positioning resets following the recent sell-off as factors behind the move.
Read more: Crypto Investment Firm Keyrock CEO Says Bitcoin Is Undervalued and Enters ‘Transitional Year’
