Is the cryptocurrency bear market coming to an end?

After January's bitcoin rally, institutional investors are once again dipping their toes into the cryptocurrency space. Digital asset investment products, popular with institutional investors, saw inflows of more than $117m last week, the biggest weekly increase since July, according to CoinShares, the asset manager. bitcoin uah is the most popular, with funds tracking it contributing $116 million of that. Total assets under management have now grown to $28bn, up 43% from their low in November 2022, when the collapse of the FTX exchange sent shockwaves through the industry.

Bitcoin surged nearly 40 percent in January, closing in on its best monthly performance since October 2021 and its second-best January performance in the past decade.

The rally and the potentially improving macro outlook have some investors hoping that the long cryptocurrency winter may finally be over. Many investors expect the Fed to raise rates by 25 basis points this week, which would be the smallest since it began raising rates last year.

Analysts at Fidelity Digital Assets said: "If peak inflation is indeed behind us, long-term interest rates are likely to move lower as the rate hike cycle draws to a close. This could signal a positive macro environment for assets like bitcoin."

Cryptocurrency liquidity provider B2C2 said activity in the options market suggests traders are eager to place bets after the Fed meeting. Cryptocurrency trading volume is also on the rise, with an average weekly volume increase of 11 percent, according to CoinShares, meaning traders are returning to the market after months in the doldrums.

That said, cryptocurrencies are just out of the woods and could still be derailed by a more hawkish message from the Fed this week.

Crypto data platform Coinglass's Bitcoin Fear and Greed index, where 0 means extreme fear and 100 means extreme greed, is hovering at 61, its highest level since mid-November 2021, shortly after bitcoin began to retreat from its peak.

Bitcoin's dominance has increased

There are other signs that the bear market may be coming to an end, according to analysts at exchange Bitfinex. Short-term investors sold bitcoin at a profit, while long-term holders held firm and didn't sell much.

"For the first time since April 2022, realized gains and losses across the market were positive in January 2023, and a continuation of this trend would mark the final phase of the bear market," the analysts said.

Moreover, bitcoin continues to dominate, accounting for about 41 per cent of the entire cryptocurrency market this month, its highest level since July last year. Citi analysts said it was similar to the rise in bitcoin's dominance in April 2019, when a rally marked the bottom of the cryptocurrency market.

Other market watchers say another relatively risky asset class could drive bitcoin next week, particularly the performance of rate-sensitive technology stocks. The correlation between bitcoin and the finger is now 0.94, the highest since May 2022, with a 1 indicating the two move in tandem.

"Bitcoin has the potential to hit its next resistance level of $25,200 in the coming weeks," said Rachel Lin, CEO of exchange Synfutures. "Even if bitcoin falls again, it is likely to take much longer to reach a higher level relative to previous lows."

Bitcoin was down 2.82% at $22,974 at the time of writing.

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