Bitcoin has held firm above the $30,000 level, as the market remains optimistic about a spot bitcoin ETF, but fresh tightening from the European Central Bank could spook investor sentiment.

On Wednesday the world's largest digital asset by market capitalization was trading at $30,334 by 7 a.m. ET, up 4.9% in the past week, according to Coingecko. Ether gained 2.6% in the same period, trading at $1,861.

Crypto prices have been buoyed by news of a number of major financial institutions plotting bitcoin ETFs — including The Block's report that Wall Street titan Fidelity is expected to file for a spot bitcoin ETF as soon as Tuesday. Fidelity's filing would follow BlackRock's June 15 application, as well as that of Invesco, WisdomTree and Bitwise.

"Bitcoin momentum remains intact as Fidelity joins the quest for the elusive bitcoin ETF with BlackRock, Invesco, WisdomTree, and Invesco. It has been about five years of steady denials of every crypto ETF filing, but now optimism is here that one of these financial giants will get one done before summer’s end," Ed Moya, senior market analyst at Oanda, noted.

Digital asset fund flows spike

According to the latest digital asset fund flows report from CoinShares, last week saw the largest single weekly inflows since July 2022, totaling $199 million, recovering almost half of the prior nine consecutive weeks of outflows. Bitcoin was the primary beneficiary, seeing $187 million in inflows last week, representing 94% of the total.

However, the report added that this risk-on sentiment didn’t trickle down to altcoins, which saw only very minor inflows. "We believe this renewed positive sentiment is due to recent announcements from high-profile ETP issuers that have filed for physically backed ETFs with the U.S. Securities & Exchange Commission and total assets under management are now at $37 billion, their highest since before the collapse of Three Arrows Capital," the report added.

Crypto headwinds gather

A major focus for investors this week will be Wednesday's release of the results of the Federal Reserve's annual stress test of banks. The yearly test is being especially closely watched this time, after three U.S. lenders failed since March. Questions linger about the ability of other institutions to withstand extreme stress.

Senior analyst at Oanda Craig Erlam said the test results could affect investors' appetite for risk assets, such as bitcoin. "We still haven’t seen the full effects of tightening credit conditions following the mini-banking crisis and should we see signs of stress, traders may become more risk averse," he told The Block.

Christine Lagarde in her opening speech at Monday's ECB Forum said monetary policy in the Eurozone would remain restrictive until "we can be confident that the inflation process has been resolved... and we will continue to raise rates in July."

The ECB president's announcement comes after the Bank of England hiked its rate to 5.00% and suggested persistently high inflation in the UK would take longer to fall. With borrowing costs in such restrictive territory, Erlam highlighted the effect on crypto-markets, saying, "people are increasingly coming around to the idea that rates won’t quickly fall back and unless things improve soon, doubts over the economy will grow and that could undermine appetite for risky assets."