Cryptocurrency investment products witness fifth consecutive week of outflows

Investment products in the digital asset space are experiencing the fifth week of outflows, with a total of $32 million withdrawn as Bitcoin declined in value in May

Bitcoin experienced a substantial outflow of $33 million last week, contributing to the total reaching $232 million since mid-April. These outflows represent 0.7 percent of the total assets under management, with Bitcoin being the primary cryptocurrency affected.

The flagship cryptocurrency initially surged above $30,000 in April but has since struggled, currently trading below $27,000 — a 2.2 percent dip over the past week. Even products that short Bitcoin experienced a $1.3 million outflow.

Altcoins, on the other hand, experienced inflows from investors, with the exception of Ethereum, which also witnessed $1 million in outflows. Avalanche (AVAX) and Litecoin (LTC) attracted inflows amounting to $0.7 million and $0.3 million, respectively.

Inflows and outflows

The weekly trading volumes have also declined significantly by 40 percent below the average for this year, totaling $900 million. At the same time, the trading volumes on reputable exchanges have reached a record low of $20 billion, which is the lowest since late 2020.

“It is unclear why there is such coordinated negative sentiment for both long and short investment products,” said crypto hedge fund CoinShares.

Germany saw the largest outflows, accounting for 73 percent or $24 million of total outflows. The United States and Switzerland also experienced notable outflows, with $5 million and $3.3 million, respectively.

In contrast, Brazil and Canada experienced minor inflows into the cryptocurrency market, with Brazil receiving $1.3 million and Canada receiving $2.2 million.

Prior to the continuous outflows, digital asset funds experienced a significant milestone, with inflows reaching a record-breaking $117 million during the last week of January, marking the highest influx in over six months.

This surge in investments coincided with the upward rally of Bitcoin and the broader cryptocurrency market earlier this year.

Wariness and concerns

Digital asset fund flows, which track the movement of cash in and out of investment vehicles, provide valuable insights into the behavior of institutional investors. Inflows indicate optimism and potential returns, while outflows may indicate caution and wariness.

The recent withdrawal of $232 million from digital asset funds over the past five weeks suggests a growing concern among institutional investors toward the industry.

One possible explanation for this trend could be the regulatory pressures in the U.S. crypto market, which may escalate soon, particularly as the U.S. debt situation unfolds.

The U.S. is currently grappling with the possibility of a debt default, as President Joe Biden and congressional Republicans disagree on raising the $31.4 trillion borrowing limit. Republicans are insisting on commitments to future spending cuts as a condition for approving a higher ceiling.

Circle, the issuer of the second-largest circulating stablecoin, has even adjusted its treasury holdings to prioritize short-dated U.S. Treasuries.

As the possibility of a U.S. default looms, President Joe Biden and top Republican Kevin McCarthy are scheduled to resume talks on the debt ceiling deal.

Although the U.S. stock market and the broader crypto sector have been minimally affected so far, the present situation presents a significant threat to global financial markets, with the equity macro strategy team at JPMorgan raising concerns that equities might be “slow to price the risk of a contested debt-ceiling rise and rising probabilities of technical default before sharply re-pricing these risks” as the U.S. gets “closer to the X-date.”