2023 marked a significant year in cryptocurrency investment, as it became the third-largest year for inflows into digital asset investment products, according to CoinShares’ latest report. The year saw inflows of $2.25 billion, trailing behind 2020’s $6.6 billion and 2021’s $10.7 billion, reflecting a notable increase from the inflows in 2022.
This resurgence in digital asset investment, particularly notable in the final quarter of 2023, was largely driven by positive regulatory signals from the U.S. Securities and Exchange Commission (SEC) regarding spot-based Bitcoin ETFs. The total assets under management (AuM) soared by 129% over the year, reaching a record high of $51 billion by year-end, the highest since March 2022.
Bitcoin Dominates Investment Flows
The investment preference for Bitcoin was particularly striking, with the cryptocurrency commanding 87% of the total inflows into digital asset investment products. This level of dominance is unprecedented, surpassing even the 80% peak seen in 2020. CoinShares attributes this to the heightened anticipation around the approval of a spot Bitcoin ETF.
Despite this optimism, some investors took a more cautious approach, directing $60 million towards short positions in Bitcoin.
Ethereum and Other Cryptocurrencies
Ethereum, although lagging behind Bitcoin in terms of AuM, saw a recovery in inflows, totaling $78 million by the end of 2023. Meanwhile, Solana attracted significant attention, with inflows amounting to $167 million, or 20% of its AuM.
Other notable cryptocurrencies, such as XRP and Cardano, also saw considerable inflows, representing a significant portion of their respective AuMs. Polkadot and Litecoin recorded annual inflows as well, albeit to a lesser extent.
Geographical Distribution of Inflows
The distribution of these inflows varied geographically. The United States, despite being the largest market, only saw inflows constituting 2% of its AuM. In contrast, Germany led in terms of proportionate inflows, accounting for 22% of its AuM. Canada and Switzerland followed, with 15% and 13% of their respective AuMs.
The relatively lower proportion of inflows in the U.S. might be attributed to investors awaiting the approval of a spot-based Bitcoin ETF, as per CoinShares’ analysis.
Overall, 2023’s performance in digital asset investments illustrates a robust recovery and growing investor confidence in the cryptocurrency market, with anticipation for regulatory developments playing a key role.