Digital asset investment products have experienced a spectacular reversal, with outflows amounting to $726 million during the week. This is equal to the largest outflow seen so far, in March 2023, according to a CoinShares report.
Macroeconomic Data Drives Investor Caution
This weakness was led mainly by stronger-than-expected macroeconomic data, which revived speculation about the US Federal Reserve’s possible interest rate action. Investors got spooked with market talk of a possible 25 bp rate cut.
Employment Data Offers Glimmer of Hope
Against that gloomy backdrop, some relief came in the form of weaker-than-expected employment data. The result is a divided house on whether the Fed might make a larger 50bp rate cut. For now, the crypto market now awaits the Consumer Price Index (CPI) inflation report, due on Tuesday.
Regional Outflows Concentrated in the US
This was highly concentrated in the United States, which accounted for US$721m of the total US$726m. Canadian outflows contributed another US$28m. Compare this to relatively better European markets, which saw inflows into Germany and Switzerland.
Bitcoin and Ethereum Lead the Outflows
Meanwhile, Bitcoin had the largest outflows at $643 million. There were minor inflows into short-Bitcoin products, which suggests that some investors have hedged against further price falls. Ethereum wasn’t an exception either; outflows at $98 million came in, largely from Grayscale Ethereum Trust.
Solana a Bright Spot
While the general trend was one of outflows, Solana bucked this trend, pulling in $6.2 million inflows. This is the speck of optimism in the digital asset space amid a wider market that is giving them a headache.
Cautious Optimism Sets In as Volatility Creeps In
As explained by QCP Capital, while the market is still wary, institutions look at this sell-off as a buying opportunity, and long-term bullish trades start to emerge. The crypto market in general would continue to be volatile, particularly heading into key events such as the Trump v Harris debate and US CPI data release.
The market remains skittish: risk reversals in both Bitcoin and Ethereum are currently skewed to puts-a testament to traders’ cautious stance in moving forward through the uncertainty.
