Crypto Outflows Hit $600 Million After Fed's Hawkish Stance

Crypto Outflows Hit $600 Million After Fed's Hawkish Stance

Bitcoin ETFEthereum ETF

By Jakub Lazurek

18 Jun 2024 (25 days ago)

3 min read

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Crypto investments saw $600 million in outflows last week, mainly from Bitcoin, following the Fed's hawkish stance, causing investor caution.

Digital asset investment products experienced outflows totaling $600 million last week, levels last seen on March 22. Analysts link this to the unexpectedly hawkish stance of the Federal Open Market Committee (FOMC). The surge in outflows followed the FOMC meeting.

Bitcoin's price potential remains constrained as investor risk appetite decreases. CoinShares reported that digital asset investment products saw $600 million in outflows last week, with Bitcoin alone accounting for $621 million. Conversely, altcoins like Ethereum (ETH) and Ripple (XRP) had positive inflows of $13 million and $1 million, respectively.

“These outflows and the recent price drop reduced total assets under management (AuM) from over $100 billion to $94 billion within a week,” according to CoinShares analysts. Bitcoin's significant outflows were accompanied by $1.8 million flowing into short-Bitcoin positions.

Analysts blame the negative flows on the Fed’s more hawkish stance in last week’s FOMC meeting. After a positive reaction to the softer US Consumer Price Index (CPI) on June 12, which helped digital assets recover some losses, market sentiment shifted when the Fed indicated a less accommodating policy outlook.

The Fed’s new dot plot suggested only one rate cut for the year, down from three previously. For many, fewer rate cuts are bad news for cryptocurrencies. The FOMC meetings are essential for decisions on key interest rates and monetary policies.

From a regional perspective, the US had the highest outflows, totaling $565 million. Canada, Switzerland, and Sweden also saw outflows of $15 million, $24 million, and $15 million, respectively.

Despite Bitcoin's negative trend, Ethereum saw $13 million in positive flows, indicating a bullish outlook. This is fueled by speculation that ETH spot ETFs will launch soon. Bloomberg analyst Eric Balchunas expects the launch by July 2.

“We have moved up our expected launch date for the spot Ether ETF to July 2, hearing that the staff sent issuers comments on S-1s, which were light, asking for them back in a week. There is a decent chance they will be declared effective before the holiday weekend,” noted Balchunas. This optimism follows US Securities and Exchange Commission (SEC) Chair Gary Gensler’s confirmation that ETH spot ETFs would launch “over the course of this summer.”

In a recent Senate hearing, Gensler noted that the approved 19b-4 forms in May came from stock exchanges expected to list the ETFs. He also mentioned that the registration process for issuers was ongoing but hoped it would conclude by summer's end.

The sharp rise in crypto investment outflows last week shows the impact of macroeconomic policies on digital assets. The market's reaction to the FOMC's hawkish stance highlights the sensitivity of crypto investments to changes in monetary policy.

Bitcoin, the leading cryptocurrency by market cap, took the hardest hit, with the largest outflows. This trend indicates growing caution among investors towards high-risk assets amid uncertain economic conditions.

Conversely, altcoins like Ethereum and Ripple managed to attract positive inflows. Ethereum's positive sentiment is linked to the anticipated launch of ETH spot ETFs, which could drive further institutional investment.

The broader market sentiment remains mixed, with varying performance across different digital assets. While Bitcoin faces challenges due to its dominant position and sensitivity to macroeconomic factors, altcoins benefit from specific bullish catalysts like upcoming ETF launches.

The future of the crypto market will likely depend on further developments from the Federal Reserve and regulatory actions. Investors will closely watch for any changes in the Fed’s policy and the progress of ETF approvals.

In summary, the recent $600 million outflows from crypto investments highlight the market's reaction to the Fed's hawkish signals. Bitcoin bore the brunt of these outflows, while altcoins like Ethereum and Ripple attracted positive inflows. The market’s direction will depend on macroeconomic policies and regulatory developments, with significant attention on the Federal Reserve’s decisions and the potential launch of ETH spot ETFs.

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