Crypto Outflows Surge as Rising Rates Cool Investor Appetite

Digital asset fund investments have declined for the second consecutive week, with $206 million in withdrawals between April 15-19. Bitcoin funds led outflows with $192 million exiting the market ahead of the halving event, while Ethereum investment products experienced outflows of $34 million, marking their sixth consecutive week of negative flow.

Bitcoin, Ether Outflows Continue as Investors Grapple with Rising Rates

Digital asset investments have faced a second consecutive week of outflows, with $206 million withdrawn between April 15-19, according to data from digital asset investment firm CoinShares. The downtrend has been fueled by growing investor concerns over rising interest rates in the United States, which have made traditional financial instruments more attractive compared to volatile cryptocurrencies.

Bitcoin Funds Lead Exodus Ahead of Halving

Bitcoin (BTC) funds spearheaded the outflows, with $192 million exiting the market in anticipation of the upcoming halving event. The halving, scheduled to occur in May, will reduce the block reward for Bitcoin miners by half, potentially impacting the cryptocurrency's supply and demand dynamics.

Ether Products Suffer Sixth Consecutive Week of Outflows

Ether (ETH) investment products also experienced outflows of $34 million, marking their sixth consecutive week of negative flow. The persistent outflows suggest that investors are scaling back their exposure to the second-largest cryptocurrency by market capitalization.

Blockchain Equities Hit By 11th Consecutive Week of Outflows

Investment in blockchain equities has also been on a downward trajectory, with the sector recording its 11th consecutive week of outflows, totaling $9 million. The sustained outflows indicate a waning interest in blockchain-based companies, likely due to the broader market downturn.

Rising Interest Rates Dampen Digital Asset Enthusiasm

CoinShares analysts attribute the downtrend to investors' apprehensions about rising interest rates in the United States. The Federal Reserve had previously hinted at easing monetary policy in mid-2024, but recent inflation data have dashed those hopes. The annual Consumer Price Index in March increased by 3.5%, exceeding expectations for the third consecutive month, indicating that lower rates may not become a reality until 2025. The federal funds rate currently sits between 5.25% and 5.50%.

"The data suggests appetite from ETP/ETF investors continues to wane, likely off the back of expectations that the FED is likely to keep interest rates at these high levels for longer than expected," the report said.

Bitcoin Fund Outflows Not Seen as Short Opportunity

Despite the Bitcoin fund outflows, investors are not necessarily betting on a sharp decline in the cryptocurrency's price. Trading volume for Bitcoin exchange-traded funds (ETFs) declined slightly to $18 billion over the week, but the outflows did not trigger a significant short-selling trend.

"These volumes represent a lower percentage of total Bitcoin volumes (which continue to rise) at 28%, compared to 55% a month ago," the report noted.

BlackRock's Bitcoin Trust Maintains Investor Interest

Inflows into Bitcoin ETFs have slowed significantly since their peak in March. However, BlackRock's iShares Bitcoin Trust (IBIT), the largest ETF in terms of assets managed, has maintained a steady level of investor interest this month, drawing $1.4 billion in positive flows as of April 19.

The ongoing outflows in digital asset funds underscore the challenges facing the industry as investors navigate a macroeconomic environment characterized by rising interest rates and inflationary pressures. While some investors may be stepping away from volatile cryptocurrencies, others remain cautiously optimistic about the long-term potential of the asset class.