After a banner month for bitcoin, big investors are dipping their toes back into the cryptocurrency seas. 

According to data from asset manager CoinShares, institutional investors, who frequently favour digital asset investment products, saw inflows of almost USD 117 million last week, the largest weekly rise since last July.

With funds tracking it accounting for USD 116 million of that, Bitcoin was by far the biggest draw. Total assets managed by cryptocurrency funds have increased to USD 28 billion, up 43% from lows seen in November when the FTX exchange collapsed and rocked the sector. The majority of individuals have greater confidence now than they had a month ago, according to Enigma Securities financial adviser Joseph Edwards.

The first cryptocurrency, Bitcoin, has increased by about 40% in January and is on pace to have its greatest month since October 2021 and second-best January in the last ten years. Some investors are hopeful that the protracted crypto winter may finally be nearing spring as a result of the surge and a potentially improving macro picture. The U.S. Federal Reserve is expected to raise its benchmark rates by 0.25% this week, the smallest increase since their tightening cycle started last year, according to many investors.

As the inflation-focused rate-hiking cycle comes to an end, long-term interest rates could decline if peak inflation is actually behind us for the time being, according to analysts at Fidelity Digital Assets. "This could indicate favourable macro momentum for assets like bitcoin."

According to cryptocurrency liquidity provider B2C2, activity in the options market showed traders were rushing to place bets immediately following the Fed meeting, a measure of the importance the market is placing on it. According to CoinShares, the average weekly volume of cryptocurrency trading has increased by 11%, signalling a rebound in activity following several months of sluggish trading.

Furthermore, this month, bitcoin's "dominance," or percentage of the entire crypto market, has been hovering around 41%, levels that have not been seen since late July. Citi analysts saw a similar increase in bitcoin dominance in April 2019, when a bitcoin rally signalled the bottom of the cryptocurrency market. Other market observers predicted that the performance of interest rate-sensitive tech companies in particular will likely determine bitcoin prices in the coming week. Stocks are another very risky asset class.

The correlation between Bitcoin and the Nasdaq is at 0.94, the highest level since May 2022; a value of 1 denotes that the two are moving simultaneously. By the end of November, bitcoin had broken free from its ties to stocks and was trading with a 0.7 negative correlation.

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