Shift in Investment Strategies
In a surprising twist showcasing the unpredictability of the crypto market, institutional investors are reeling from the fallout of the FTX collapse. They’ve responded by flooding into crypto-focused short-investment products, betting on the decline of cryptocurrency prices. According to CoinShares’ chief strategy officer, James Butterfill, a whopping 75% of the total inflows into crypto investments for the week ending Nov. 18 were aimed at short investments.
Record-Breaking Short Positions
Butterfill suggested that this massive uptake of short positions is undoubtedly connected to the aftermath of FTX’s demise. The total assets under management (AUM) by institutional investors have sunk to $22 billion, marking the lowest levels in two years. The data reveals that during the week, $14 million was funneled into short-Ether (ETH) investment products, marking a record inflow. Renewal of uncertainty regarding Ethereum’s Shanghai upgrade, which is set for September 2023, plays a significant role in this negative sentiment.
Bitcoin Takes a Hit
Not only has Ethereum faced scrutiny, but short positions in Bitcoin (BTC) are also on the rise, with inflows hitting $18.4 million. Bitcoin short products are nearing $173 million AUM, giving a sign that investors are turning their backs on bullish sentiments. This decline is compounded by the $6 million outflow in altcoins, impacting notable players such as Solana (SOL), XRP (XRP), BNB (BNB), and Polygon (MATIC).
Drawbacks in the Broader Market
The investor hesitance extends beyond crypto, signaling a significant ripple effect on traditional finance. Coinbase, once the darling of the exchange market, hit an all-time low share price on November 21, down almost 88% from its public debut on April 16, 2021. The share price slipped to under $41, with an 8.9% drop that day, showcasing the drastic shift in market sentiment.
A Cautionary Tale
With the crypto space in disarray, investors seem to be collectively taking a step back, reflecting on the inherent risks of centralized exchanges. The fall from grace of once-trusted platforms calls to mind the timeless adage: if it seems too good to be true, it probably is. With institutional investors retreating into the safety of short positions, we may well be witnessing a paradigm shift in the crypto investment landscape.
