Increasing institutional interest & AI narrative pushing crypto markets

What happened this week

Another strong weekly close

Bitcoin closed the previous week with a weekly increase of almost 8%, marking another strong close in the second week of February. The crypto markets dipped slightly over the weekend but recovered the -4% correction on Saturday rather quickly, opening the week at $52’168 for Bitcoin and $2’883 for Ethereum.

The U.S. stock market was closed on Monday for President’s Day, which gave room for some crypto-native price action. AI-related coins have started to outperform the market after the news surrounding OpenAI’s new Sora AI model came out on Friday. Coins like Akash (AKT), Render (RNDR) and especially Worldcoin (WLD) have experienced big price increases over the weekend and on Monday. With the latter achieving a new all-time high and being up more than 100% since the announcement three days before.

Muted price action over all on Monday

Monday was a rather quiet day overall for the crypto markets. This absence was also felt in the order books, with the volume being down to weekend levels on most major exchanges.

An interesting figure was shared by CoinShares for their weekly Digital Asset Fund Flows Report, which shows a record of $2.45bn of inflows last week, which puts us back to December 2021 levels. The United States dominated, with 99% of the inflows, totaling $2.4 billion.

ETH back above $3’000 on Tuesday

On Tuesday this week, ETH traded back above $3’000 again for the first time since April 2022, even though it was only for a short time. Below is the ETHUSD chart over the past roughly two years, it took ETH exactly 666 days to get back above $3’000.

On the TradFi side, Tuesday was a red day, with the S&P500 correcting -1% intraday and closing the day 0.6% in the red. Nvidia was down over 6.5% during the trading day on Tuesday and closed the day -4.35%. This downward move in Nvidia was likely due to investors securing some profits after the parabolic move in the last months and just one day before the company’s first quarterly earnings report since Nvidia’s market cap surpassed Alphabet and Amazon.

The daily inflows for the BTC spot ETFs slowed down a little on Tuesday, with the inflows being down to $135 million for the day, the lowest level since February 7, 2024. On a positive side note, the total inflows crossed the $5 billion mark on Tuesday after just six weeks of trading.

Nvidia Wednesday

The crypto market corrected to the downside along with the U.S. equity market but then recovered some ground after Nvidia’s earnings release after U.S. market close. The total crypto market cap was down over 3% intraday on Wednesday but closed the day with a minus of roughly 1.5%. Nvidia (NVDA), the giant chipmaker surpassed already high expectations for its fourth-quarter earnings, which had a positive ripple effect on both equity markets and AI-related tokens. Nvidia reported earnings per share of $5.16, surpassing analysts' average estimate of $4.59, and posted revenue of $22.1 billion, exceeding Wall Street's expectation of $20.4 billion.

An interesting and present question for crypto markets is whether retail investors are already back in the markets or not. In this regard, the recent earnings release of Coinbase can shed some light on. The chart below shows that the quarterly retail trading volume on Coinbase has risen over the year 2023 but is still significantly lower than in 2021. It’s interesting to note that it is roughly at the same level as in Q4 2020.

Equities opened up higher on Thursday

The day after the Nvidia earnings release, its stock with the ticker NVDA opened up +11% higher than where it closed just before its earnings release on Wednesday, reaching a new all-time high. The S&P500 opened 1.4% higher with a new all-time high and the Nasdaq opened 2.17% higher. Bitcoin and the crypto market had a positive Thursday morning, then corrected a little into U.S. market open in the afternoon. The correction in the early afternoon was likely due to the circulation of Wednesday’s BTC spot ETF flow numbers, which were in the negative again for the first time since 25 January 2024, as you can see in the chart below.

Consolidation on Friday

Entering Friday, BTC displayed indications of consolidation while maintaining a position near the $51’000 threshold. Institutional investment activity slowed down on February 21, marked by Bitcoin ETFs witnessing outflows of $36 million. Nevertheless, there was a rebound in inflows yesterday, with a noteworthy $251 million entering Bitcoin ETFs, counteracting the losses from the preceding day. BlackRock's iShares Bitcoin ETF held a substantial 124,535 BTC, valued at $6.35 billion. In the VC space, news emerged that venture capital firm A16Z injected $100m into Eigenlayer from the series B funding round.

Our Take

Given the developments in the crypto market this week, the future price trajectory appears to be influenced by a mix of institutional and technical factors. Bitcoin's consolidation around the $51’000 mark, despite a brief retracement to $50’700, and Ethereum's fluctuation from crossing the $3’000 level, then dipping just under $2’890 before recovering, suggest a market that is responsive yet resilient to external pressures. The significant inflows into Bitcoin ETFs, particularly the $251 million from yesterday, indicate renewed institutional interest which could support Bitcoin's price. The recent advancements in the tech sector with AI ties, such as Nvidia’s positive earnings reports, have significantly uplifted tokens within the market, particularly those with ties to AI narratives. This overall positive trend possesses the potential to enhance market sentiment in a broader sense. However, caution is advised when AI stocks in traditional finance show signs of less stellar growth, as this could potentially have a cascading impact on the crypto market, particularly AI tokens.

The Week Ahead

Wednesday, February 28, 2024

• U.S. GDP Q4

Thursday, February 29, 2024

• German CPI Feb
• U.S. Initial Jobless Claims

Friday, March 1, 2024

• Eurozone CPI Feb