Crypto Investment Products Suffer Third Straight Week of Outflows

Cryptocurrency investment products witnessed a significant $435 million outflow during the week ending April 26, marking the third consecutive week of outflows for crypto exchange-traded products (ETPs). Bitcoin funds contributed significantly to the outflow, with $423 million exiting the market post-halving, while Ether products also faced withdrawals of $38 million, extending their negative flow streak to seven weeks.

Cryptocurrency Investment Products Experience Third Consecutive Week of Outflows

London, April 26, 2023 - A recent report from CoinShares reveals a significant outflow of $435 million from cryptocurrency investment products during the week ending April 26. This marks the third consecutive week of outflows for crypto exchange-traded products (ETPs) as Bitcoin's price remains stagnant within the $60,000 range.

Bitcoin (BTC) funds led the outflows, with $423 million exiting the market following the recent halving event. Ether (ETH) investment products also experienced withdrawals of $38 million, extending their negative flow streak to seven consecutive weeks. In contrast, Solana (SOL) and Litecoin (LTC) ETPs received deposits, with net inflows of $4.1 million and $3.1 million, respectively.

According to CoinShares, the negative outflows are attributed to "deceleration in inflows from new issuers," with only $126 million in inflows recorded last week compared to $254 million the previous week. Notably, data from Farside Investors indicates that BlackRock's Bitcoin ETF, IBIT, experienced "zero flows" for the first time last week. Other issuers have also faced periods of zero inflows amidst decelerating outflows from Grayscale's GBTC.

The negative outflows are believed to be a reflection of investors' concerns over potential U.S. stagflation – a combination of slowed economic growth and rising inflation – which has diminished the likelihood of Federal Reserve rate cuts. CME FedWatch tool suggests that traders currently assign a mere 11.3% probability to a June rate cut, compared to 44.8% for September and 43.8% for November. This implies that market analysts anticipate the U.S. Federal Reserve to maintain interest rates in May and June, with the first potential rate cut occurring later in the year.

Analysts at brokerage firm Bernstein view the slowdown in spot Bitcoin ETF inflows not as the onset of a negative trend but rather as a "short-term pause" before BTC resumes its bull run. In a note to clients, Bernstein analysts Gautam Chhugani and Mahika Sapra expressed optimism, stating:

"We don't expect the Bitcoin ETF slowdown to be a worrying trend, but believe it is a short-term pause before ETFs become more integrated with private bank platforms, wealth advisors, and even more brokerage platforms."

The analysts maintain their price target of $150,000 for Bitcoin by the end of 2025, citing "unprecedented ETF demand" that has resulted in $12 billion of spot Bitcoin ETF net inflows since their market debut on January 11.

However, a report from Ecoinometrics cautions readers to monitor a potential shift in financial conditions that could influence the Bitcoin bull market. The report highlights that while spot Bitcoin ETFs have "opened up a new source of demand," unfavorable macroeconomic conditions and the U.S. Federal Reserve's inability to control inflation could pose challenges.

"That could cause a re-tightening of the financial conditions," the report explains. "And this would create a headwind for the bull market."

Ecoinometrics notes that the Federal Reserve Bank of Chicago's National Financial Conditions Index (NFCI) – a measure of the tightness in the U.S. financial system – has stalled and is at the same level it was in 2022 when interest rates began to rise.

"If it just stays at that, then we are simply experiencing a pause in the bull market," Ecoinometrics explains. "But if this is a pivot in the financial conditions, the bull market would be in trouble."

Amidst the market uncertainty, QCP, a provider of data and analytics on digital asset markets, anticipates a potential catalyst next week with the launch of HK BTC and ETH spot ETFs. "Interest is growing in what could be a gateway for the inflow of Asian institutional capital," QCP noted in a recent note.

It is important to emphasize that this article does not constitute investment advice or recommendations. Cryptocurrency investments are subject to risks, and investors should conduct thorough research before making any investment decisions.