With institutional demand declining in recent months, is it time for Bitcoin investors to “retreat”?

Growing acceptance of Bitcoin by institutional investors has been a key driver of its rally, but there are signs that institutional demand has declined in recent months despite the surge in Bitcoin prices.

The number of large bitcoin trades, typically made by professional fund managers, fell slightly in the first quarter of this year from the fourth quarter, according to a report from crypto exchange OKEx. Inflows into crypto exchange-traded products have fallen from a peak in January, according to data from London-based asset manager CoinShares.

Philip Gradwell, chief economist at blockchain analysis firm Chainalysis, said that as the flow of Bitcoin into exchanges continues to decline, it also shows that the persistently high price volatility is mainly driven by "speculative demand" rather than any fundamental factors.

“Since the February highs in bitcoin prices and heightened volatility, we have seen a steady decline in investor interest,” a CoinShares report said.

“We also saw a decline in Bitcoin investment product trading volume to $713 million per day, compared to $1.1 billion per day in 2021,” the report reads.

Fund flow data also showed regional differences. Inflows into the United States are slowing, while European and Canadian investors have maintained interest.

In terms of regulation, Eva Ados, chief investment strategist at asset management company ER Shares, believes that judging from the current policies, many governments may introduce more stringent regulatory policies in the future, which will make Bitcoin more volatile. Ados said that under the current regulatory policies, "withdrawal" may be the best option for investors.

Data from US research firm Flipside Crypto shows that less than 2% of Bitcoin accounts currently control 95% of the market, which may still have a huge impact on the illiquid market.

Kyle Rodda, an analyst at investment institution IGMarkets, believes that Bitcoin's current liquidity is inferior to that of other financial market segments. If the demand for Bitcoin decreases, the price will fall, which will evoke painful memories of the Bitcoin crash in 2017.