At what levels might institutional investors make moves back into crypto?

GB Market Commentary 30/12/2021

by Benjamin Small

The festive period has continued to frustrate crypto holders with a marked lack of trading volume across exchanges forcing BTC and ETH back down to levels last seen in October of this year. It was hoped that we might see a resurgence of institutional appetite around these more attractive levels given the price action we saw when the first BTC ETF was launched back in the autumn, but this hasn’t come to fruition just yet.

The latest Archane report made for interesting reading on this point. They estimate just over $6.5bn has been committed via these ETFs since they hit the market though it does seem that momentum has cooled since the end of November. Clearly investors are still struggling with the potential risk of another lockdown and the ramifications this might hold for the wider market.

Having said that, Proshares confirmed this week that their ETF was able to commit another $40m, marking its 3rd consecutive monthly push. Perhaps this gradual, almost silent institutional play will continue to provide support to BTC as the months go on as a result.

How much further could the Federal Reserve drag Bitcoin’s value down?

The consistent undertone from the Federal Reserve could be playing a big role in this painful decline. You could argue much of BTC’s success throughout 2021 has come from a real appetite from investors to hedge against the hyper-inflation we are seeing around the world.

However, Powell’s intentions to reverse that need have become relatively clear. Indeed, despite the resurgence of the virus the Fed will potentially be looking to unwind it’s eye watering $120 billion (monthly) asset purchasing program along with an expected 3 interest rate hikes.

Today’s jobless claims data from the US might well be the last economic release of 2021 that could sway this position and so might be worth monitoring as a result. Should the US jobs market show signs of weakness in-light of the risk of COVID-19 fighting back, Powell might be forced into showing flexibility in his push against inflation which in turn could mark a change in trend for BTC and the crypto market as a whole.