Different headwinds across the globe have seriously affected digital assets directly or indirectly. These includes everything from inflation concerns, EU anti-crypto amendments to government bans. Whatever the reason be, investors want to reduce their exposure to risky assets.
Want this, not that
This year, the price swings in January and February have led to investor perceptions swinging back, favoring large caps such as Bitcoin and Ethereum. A leading crypto asset manager, CoinShares, highlighted this scenario in a 29 March report.
According to the report, investors tracked back into Bitcoin (BTC) and Ethereum(ETH) while reducing exposure to altcoins. Alt tokens such as XRP and smart contract-enabled blockchains Cardano (ADA) and Polkadot (DOT). This is evident in the graph below:
Nonetheless, a few altcoins did create headlines. Sentiment in Ethereum competitors such as Solana (SOL), Avalanche (AVAX), Cosmos (ATOM) and Terra (LUNA) has been rising. Diversification of portfolios is the main reason why investors are considering such altcoins in their portfolios.
Source: CoinShares
However, it is also interesting to see investors are putting their money into cryptocurrencies as they see value in the new asset class.
All good and no bad?
Cryptocurrencies have enjoyed a significant amount of love and affection – that’s a fact. However, over the years, regulatory censures did create hiccups along the way. Investors reduced positions in digital assets with perceptions around politics.
Needless to say, government bans stood on the top of the list of critical risks.
[2/3] Investors are reducing positions in digital assets with perceptions around politics and a government ban being on the top of the list of key risks. pic.twitter.com/uCeRCaXwdQ
— CoinShares 👩🚀 (@CoinSharesCo) March 30, 2022
The CoinShares survey revealed that the biggest risk in the eyes of investors incorporated prohibition on crypto assets by governments.
“This survey was taken during the month of March 2022, when concerns over a Proof of Work (PoW) ban heightened due to the vote in the European Union parliament. Also, the anticipation around executive order from President Biden.
This led to political and a government ban topping the list of key risks. As it happens, a PoW ban was not implemented and the executive order instructed various government departments to study digital assets further.”
Consider the decline in statistic to highlight this setback. The average portfolio weighting in digital assets declined from 0.8% to 0.5%. Looking in conjunction with the fund flows, the report suggested,
“This decline was combination of reducing positions and the effect of negative price action.”