Since 2020, institutional investors (companies with investments of $1 million or more) have become the leading investment force for the cryptocurrency market. ETFs for spot and futures Bitcoin have appeared, the number of public mining companies and investment funds has increased. Even Western state pension funds did not shy away from investing in Bitcoin.
In many ways, this was the result of the active printing of dollars by the Fed to ensure federal programs to support the population and businesses. So, the American crypto exchange Coinbase (NASDAQ:COIN) recorded a fourfold increase in deposits by exactly the amount of incentive payments of $ 1,200 in April 2020. In those days, Bitcoin was worth $7k.
Over a third of new dollars were printed in two years, and the Fed’s balance sheet doubled to $9 trillion. Investors invested money in all sectors of the economy, from real estate to cryptocurrencies, which led to an increase in inflation in the United States significantly above the target level.
Now, in order to cool the markets, the Fed is forced to turn its policy 180 degrees – raise the key rate and sell some securities. This will inevitably lead to a fall in the value of most risky assets. Thus, the stock market (S&P500 index) has already sunk by 13% since the beginning of the year.
These trends could not but affect the cryptocurrency market.
As a result, the net outflow of investments from cryptocurrency funds reached a historical level of 14,327 BTC. The largest flight is demonstrated by American investors, who have reduced the volume of investments by 11% over the month.
Bitcoin, like the stock market, is trading at a discount this year, however, adjusted for volatility, it shows a much smaller drawdown. This is due to the activity of small investors who continue to believe in the power of the coin. So, a group of investors with wallets from 0.1 BTC to 10 BTC doubled their positions only in April, bringing the total stock to 2.5 million BTC.
If small players were the leading force in the Bitcoin market, now we would see a price increase instead of a correction.
However, institutional investors still remain such, whose strategies are built with an eye to the actions of the Fed. It is expected that the regulator at today’s meeting will raise the key rate immediately by 0.75%. A sharp rise, coupled with the impending unloading of the Fed’s balance sheet, is likely to lead to an increase in the outflow of large capital from Bitcoin.