Grayscale Report: Institutional Funds Are Entering, and the Buying Sentiment in the Crypto Market Has Changed

1. Grayscale: Institutions Are Becoming the Main Buyers
In early April, Grayscale mentioned in a research report on the crypto market that over the past few years, the main market participants have been gradually shifting from retail investors to institutional funds. Similar judgments are not only found in the report but are also directly reflected in the actual market situation. The most obvious point is that the source of funds has begun to change. Taking Bitcoin as an example, since the launch of the US spot ETF in 2024, capital flows have become highly concentrated. Products from BlackRock’s IBIT and Fidelity Investments have experienced continuous net inflows over a period of time. On some trading days, daily capital inflows reached hundreds of millions of dollars. More importantly, these funds have not exited significantly with short-term volatility but have continued to enter across different price ranges. This is a clear departure from the previous market operation mode. In the past, funds mainly operated around short-term price fluctuations, but now, the funds entering through ETFs are closer to a long-term allocation logic. Similar changes are also seen on the corporate side. MicroStrategy has been steadily increasing its Bitcoin holdings over the past few years, now holding hundreds of thousands of coins. Its strategy is explicitly disclosed—holding Bitcoin as part of the company's assets for the long term. When ETF funds continue to flow in and corporate holdings are maintained long-term simultaneously, the buyer structure in the market is already changing. These changes themselves indicate one point: the main buyers in the market are gradually shifting toward institutional funds.

2. Why Are Funds Starting to Come In?
If you only see “institutions are buying,” that’s not enough. The more important question is: why are these funds entering at this stage? Looking at the changes over the past two years, the reasons are not complicated and can be supported by real-world fundamentals in the market. First, the participation process has become much simpler. Previously, most traditional funds wanting to participate in digital currencies faced very complex procedures: opening exchange accounts, compliance reviews, custody issues, and restrictions in different jurisdictions. But since 2024, after the launch of the US spot ETF, this process has been significantly simplified. Products from BlackRock and Fidelity essentially turn “buying Bitcoin” into a standard securities transaction. Funds no longer need to enter exchanges or handle on-chain issues; they can complete allocations through traditional accounts. This is a huge change for institutions. Second, custody and security issues are gradually being resolved. Many institutions previously did not participate because there was no clear answer to questions like where assets are stored, how they are custodied, and who is responsible if problems occur. Now, firms like Switzerland’s Sygnum Bank and some compliant custody providers in the US are beginning to offer comprehensive digital asset custody services. These providers do not just offer simple wallet services but act like traditional custodial banks: asset segregation, auditing, compliance reporting, all being improved step by step. Third, regulatory pathways are becoming clearer. Besides the US ETF, developments like Hong Kong’s recent licensing of stablecoins and the implementation of Europe’s MiCA framework are similar changes. Different regions have different paces, but the direction is unified—participation methods are starting to be regulated rather than relying solely on market spontaneity. As participation pathways, custody methods, and regulatory boundaries become clearer, many previously “impossible” activities are now becoming “possible.” This is why institutional funds did not appear suddenly but entered gradually. From continuous ETF inflows to corporate asset allocations and the inclusion of stablecoins in regulatory frameworks, these changes themselves demonstrate one point: the conditions for market participation have changed from the past.

3. This Is Not Trading Capital, But Allocation Capital
When the buyer base changes, more importantly, is how this capital behaves in the market. Because different types of funds do very different things. If it’s trading capital, its characteristics are quite obvious: it enters during price increases, exits quickly during volatility, and the rhythm is often very short. But recent market performance shows that this is not entirely the case. Take ETFs as an example: during periods of significant Bitcoin price volatility, funds did not exit en masse. On the contrary, during some pullbacks, continuous net inflows could still be observed. This behavior is closer to traditional asset allocation—funds do not wait for market confirmation to enter but gradually build positions across different price ranges. Similar situations can be seen on the corporate side. MicroStrategy’s approach is very typical. It does not concentrate purchases at a single price point but continues to add positions at different stages. Whether the market is rising, oscillating, or pulling back, its core logic remains unchanged: holding Bitcoin as part of the company’s assets for the long term. This behavior is fundamentally different from “trading.” One revolves around price fluctuations, the other around asset allocation. Looking at more detailed market behaviors, similar changes can be observed. For example, during market corrections, large addresses’ holdings do not decline significantly, and the selling pressure on exchanges is more dispersed than in past extreme conditions, rather than being concentrated. These combined changes actually indicate one point: a type of capital is emerging in the market that no longer aims for short-term trading but is based on long-term allocation. Once this type of capital becomes the main buyer, the market itself will change. Prices will still fluctuate, but the underlying logic will no longer be solely driven by sentiment. From this perspective, the current crypto market is no longer just a trading market but is beginning to exhibit characteristics of being treated as an asset for allocation.

4. When Buyers Change, Non-Price Logic Begins to Emerge
When the main buyers in the market change, the first thing to shift is not necessarily the price itself but the logic behind the price. In the past, the price of digital currencies was largely driven by trading behavior. During uptrends, capital concentrated in; during declines, it quickly exited; volatility was the core of the market. But as more funds enter with “allocation” as their purpose, this situation will gradually change. The key feature of allocation funds is simple: they do not exit entirely due to short-term fluctuations, nor do they only appear within a specific price range. They are more like “permanent buyers.” Once such buyers appear, the market will have an underlying support. Prices will still fluctuate, but they will no longer be entirely driven by emotions. Similar situations have also appeared in other assets. Gold, for a long time, was also a market mainly driven by trading. But as central banks and institutions continued to allocate, it gradually developed a stable demand source. Digital currencies are experiencing a similar change. As ETF funds continue to flow in, corporate long-term holdings increase, and institutional accounts’ share continues to grow, a segment of “not easily leaving the market” funds has already begun to form. The existence of these funds alone will change the way the market operates.

5. When Market Operation Changes, Assets Are Reinterpreted
Once stable allocation funds appear in the market, the significance of the assets themselves will also change. In the past, digital currencies were mostly seen as trading targets. The focus was on price fluctuations, short-term opportunities, and market sentiment. But as institutional funds gradually become the main participants, the focus begins to shift. For these funds, digital currencies are not tools for frequent trading but assets that can be held long-term and included in portfolios. This is also why, in some institutional asset allocations, digital currencies are beginning to be placed alongside gold and commodities. Not because they lack volatility, but because their role in the portfolio is being redefined. This change will not be fully reflected in a short period. But once participants, sources of funds, and holding methods change, the asset’s pricing logic will also shift. From this perspective, the current market changes are not just “who is buying,” but rather: these assets are being viewed in a different way.

6. When the Market Is Reinterpreted, Participation Methods Also Change
When an asset begins to be incorporated into long-term funds, the ways of participating in the market will also change. In the past, trading was mainly around price fluctuations; now, another approach is emerging—treating it as part of an asset portfolio for long-term management. These two approaches are fundamentally different. One focuses on short-term changes; the other on long-term stability. It is in this context that some institutions are beginning to try participating in digital currencies using methods closer to traditional asset management. The practice path represented by German firm SingularityNET is formed in this context. It does not rely on market timing but treats digital currencies within an “asset management” framework from the start: not relying on a single direction, using multi-strategy diversification to spread sources of return, employing market-neutral structures to reduce dependence on price volatility, and using subordinate capital as a safety cushion to absorb risks during downturns. This approach is not about amplifying volatility but about constraining it. In other words, in the same market: some are involved in price trading, while others are managing assets. As the dominant funds in the market gradually change, this difference will become even more apparent.