The cryptocurrency market experienced $2.25 billion inflows in 2023, 2.7 times higher than the previous year, as reported by CoinShares. This marked the market’s third-best year ever since the data reporting began in 2017.
The digital assets investment recorded $6.6 billion and $10.7 billion in 2020 and 2021, respectively, according to the report. The head of research at CoinShares James Butterfill sees this increasing trend due to investors’ sentiment and market movement than previous year.
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The impactful recovery occurred in the final quarter, aligning with increasing indications that the U.S. Securities and Exchange Commission (SEC) would approve spot Bitcoin ETFs in the country.
Total assets under management (AuM) increased 129 percent to $51 billion over the year, the highest level since March 2022. CoinShares elaborated on the inflow contribution in the different regions, with the U.S. achieving the highest inflows of $792 million, but only representing 2 percent of the total AuM.
Meanwhile, Germany led with 22 percent of AuM with $663 million, followed by Canada and Switzerland at 15 percent and 13 percent, respectively.
Bitcoin dominates market inflows
With a total of $2.25 million in inflows, Bitcoin represents 87 percent of the total inflows with $1.9 billion, according to CoinShares’ latest findings.
The figure has marked the highest percentage in history, surpassing the peak of 80 percent in 2020 and reaching the lowest point in 2017 with only 42 percent. This significant raising indicates that investors are more confident in the digital asset market.
CoinShares revealed the possible reason is due to the excitement revolving around the upcoming spot Bitcoin ETF. It was seen in the price of Bitcoin that exceeded $45,000 in early January 2024. Additionally, several investors also shifted $60 million into short positions on Bitcoin, anticipating a potential price decline.
While Bitcoin led the inflows, other cryptocurrency products also saw an improvement. Ethereum witnessed a recovery in inflows, hitting $78 million by the end of the year. However, the figure still lags compared to its total AuM, representing only 0.7 percent.
Meanwhile, Solana profited from investors’ doubts about Ethereum, bringing in $167 million in inflows, equivalent to 20 percent of AuM.
At the same time, XRP and Cardano recorded inflows of $18 million and $14 million, respectively, which represents almost 24 percent and 20 percent of their AuMs. Polkadot posted annual inflows of $6 million or 16 percent of its AuM, while Litecoin recorded annual inflows of $3 million, which represented 2 percent of its AuM.
Crypto market outlook in 2024
CoinShares’ report points out the dynamic environment of the digital asset market, with Bitcoin investment growth and the expansion of alternative cryptocurrencies like Solana.
In addition to anticipating regulation clarity for spot Bitcoin ETF, analysts say investors are looking forward to the next Bitcoin halving event, which is expected to take place in April 2024. This event will deduct the rewards paid to miners for each block of transactions added to the blockchain. The event has historically propped up Bitcoin prices in the market.
Interest rates and inflation also decide the crypto market performance. In 2023, the U.S. Federal Reserve succeeded in decreasing inflation without putting the U.S. economy into recession.
Analysts note that if the Fed can continue to steer the economy toward a soft landing in 2024 and initiate interest rate cuts earlier with a vigorous approach than previously thought, there will be a significant rally in stocks, cryptos, and other risk assets.
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