Institutional investors seem to be pushing Bitcoin to greater levels, let’s look into it.
Over the month of January, Bitcoin returned to its highest level since August, gaining 41% to $23.5k. Is this a sign that institutional crypto investing is making a comeback? Data indicates that a lot of the bitcoin gains during January might have come from institutional buy pressure.
Who is Really Behind the Crypto Rally?
Historically, the “January Effect” is a well-observed phenomenon wherein small-cap stocks tend to outperform large-cap stocks. This is typically attributed to reinvestment of end-year bonuses, tax-loss selling (different from tax-loss harvesting), and overall optimism at the beginning of a new year.
Not only is there a January Effect, but also the “first five days” rule. According to Stock Trader’s Almanac, having tracked the stock market since 1950, the first five days of January indicate if the market will stay up by the year’s end. In this light, we can view crypto investing as well.
After all, the reason why the crypto market often correlates with the stock market is due to institutional investors bringing greater liquidity. This creates a ripple effect that affects the entire market.
At 0.80 correlation coefficient, tech-weighed Nasdaq 100 index continues to strongly correlate with Bitcoin price. Image credit: Trading View
On Monday, CoinShares reported the largest digital asset inflows since July 2022, two months after the Terra (LUNA) collapse. Equally bullish, the total assets under management (AuM) increased by 43% from November’s lows to $28 billion.