Data from asset management company CoinShares shows that crypto funds rose 134% in assets under management (AUM) from 2022 to 2023. In 2022, investors had $22.3 billion in crypto exposure through funds. This number was $52.1 billion until December 22, according to the latest numbers shared by CoinShares.
This sharp growth in AUM can be attributed to a macro-economic movement seen in 2023, says James Butterfill, Head of Research at CoinShares. The US Federal Reserve’s shift away from raising interest rates influenced Bitcoin’s price increase in the first half of 2023.
“As an emerging store of value, Bitcoin is particularly sensitive to interest rate changes, competing with other value stores like treasuries, which become less attractive when yields fall. Additionally, high-interest rates contributed to challenges in the banking sector, including the collapse of some large banks and the Federal Reserve’s subsequent intervention to support the system. This turmoil triggered a flight to quality assets, with Bitcoin emerging as a primary beneficiary,” Butterfill explains.
The second half of 2023 was largely driven by excitement around the potential launch of a spot-based Bitcoin ETF in the United States, adds Butterfill. With 11 issuers, including the world’s largest asset manager BlackRock, applying to the SEC, along with Grayscale’s legal victory over the SEC, there was a noticeable impact on Bitcoin prices.
The flight to quality assets mentioned by CoinShares’ Head of Research can be seen in the rise of AUM shown by crypto funds indexed to Bitcoin (BTC) price, which grew 173% from 2022 to 2023 and represents 71.7% of the total AUM.
However, the most notable growth in AUM was performed by crypto funds related to Solana’s prices. The AUM of these investment vehicles started 2023 at the $27 million mark and is closing the year at $747 million, with a 2,665% increased yearly rise.
Expectations for 2024
James Butterfill sees 2024 as a critical year for digital assets with several key developments anticipated. One significant event is the expected launch of spot-based Bitcoin ETFs in the US, a process nearly a decade in the making.
“This development, combined with the SEC’s approval, could open market access to a wide range of investors, potentially marking a major milestone in the acceptance of digital assets”, Butterfill states. “Even conservative estimates suggest that a 10% increase in the current assets under management (approximately $3 billion) could raise Bitcoin prices to about $60,000.”
Furthermore, the Head of Research at CoinShares points out that 2024 is set to half Bitcoin’s supply, reducing daily production from 900 to 450 BTC, historically supporting price growth. Nevertheless, monetary policy will continue to play a vital role in Bitcoin’s valuation, particularly as investor preferences shift amidst rising interest rates.
“Although interest rate cuts are expected in both the US and Europe, prolonged higher rates could moderate Bitcoin’s price increases.”
The increasing correlation between bonds and equities, now at a record high excluding the Covid-19 period, is seen as a driver for the need for effective diversification among investors, says Butterfill. He weighs in that Bitcoin has demonstrated its potential to offer significantly greater diversification than traditional asset classes. This realization is likely to further boost its adoption and valuation in the near future.
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