Bitcoin falls to $30,000. What are institutions and whales doing?

As the cryptocurrency market continues to lose ground, with its total market capitalization falling to $1.4 trillion and the price of Bitcoin hitting the $30,000 mark, blockchain analysts at CoinShares and Glassnode are seeing an interesting mix of investor activity.

There is evidence that investors are taking advantage of last week’s price turmoil to move more assets into exchange-traded products based on Bitcoin, Ethereum and other cryptocurrencies. But it is worth noting that unlike retail investors, wealthy investors (known as whales) and institutions with large positions often have enough funds to weather the storm in the market.

According to a new report from CoinShares, crypto investment products saw a total of $40 million in net inflows over the past week, with Bitcoin seeing a net inflow of $45 million, suggesting that investors are taking advantage of the market and entering exchange-traded Bitcoin products at lower prices.

The CoinShares report tracks exchange-traded cryptocurrency products such as the Grayscale Bitcoin Trust (GBTC), which passively invests in Bitcoin (BTC) and mirrors its price movements. As of Monday afternoon, GBTC shares were down 19% over the past five days, compared with Bitcoin’s 23% drop.

James Butterfill, head of research at CoinShares, wrote in the report:

Interestingly, we did not see the surge in investment product trading activity that we typically see during periods of extreme price weakness historically, and it is too early to tell whether this marks the end of the four-week period of negative sentiment.

One possible reason is that while price weakness has caused Bitcoin and Ethereum to fall 50% from their all-time price highs in November, it is still not as bad as previous bear markets.

Glassnode wrote:

The current price is still mild compared to the final lows of previous Bitcoin bear markets; July 2021 saw a 54.2% drop in Bitcoin’s price, while the 2015, 2018, and March 2020 bear markets saw 77.2% and 85.5% drops from all-time highs.

Meanwhile, there has been some notable action in price speculation. Investors use futures (a type of derivative) to bet on whether the price of an asset will rise or fall. In the past week, a record $4 million flowed into contracts that short bitcoin (betting that its price will continue to fall).

This brings the total assets of short Bitcoin products to an all-time high of $45 million. Despite the record, Bitcoin long assets that are bullish on price increases still far outweigh Bitcoin short products. According to CoinShares data, $45 million in short products is 0.15% of the $30 billion in assets under management of Bitcoin long products.

But optimism about the market may soon wane.

In its newsletter on Monday, Glassnode calculated that if the price of Bitcoin falls to around $33,600 per coin, cryptocurrency investors will face the same pressure seen in previous bear markets. A few hours after Glassnode published its report on Monday morning, the price of Bitcoin did fall, falling to as low as $30,516.07 before rebounding slightly.

CoinShares looks at exchange-traded funds that offer indirect exposure to cryptocurrencies, while Glassnode analyzes blockchain data from wallets that have direct exposure to the cryptocurrency market.

According to their calculations, more than 60% of the network currently has unrealized losses.

Glassnode researchers noted:

These levels coincide with profitability seen during the bear markets of late 2018, and late 2019-2020. However, it should be noted that both of these examples occurred prior to the market’s final capitulation events.