Cryptocurrency investment fund outflows $435 million due to stagnant bull market amid rising inflation concerns

CoinShares reports that $435 million was seen weekly outflow from cryptocurrency investment products in the week ending April 26. With the price of Bitcoin remaining in the low $60,000 range, the cryptocurrency exchange-traded product (ETP) has now experienced three consecutive weeks of outflows.

The Bitcoin (BTC) fund led the outflow, with $423 million leaving the market after the halving, and the Ether (ETH) investment product also experienced a withdrawal of $38 million, recording a negative flow for seven consecutive weeks. Solana (SOL) and Litecoin (LTC) ETPs experienced deposits, recording net inflows of $4.1 million and $3.1 million, respectively.

According to CoinShares, the negative outflows were likely caused by “reduced inflows from new issuers.” Last week, inflows totaled just $126 million, compared to $254 million the previous week.

BlackRock’s Bitcoin ETF, IBIT, recorded “zero flow” for the first time last week, according to data from Farside Investors. Other issuers have experienced days of zero inflows over the past few weeks, with outflows declining from Grayscale’s GBTC.

Negative outflows are likely the result of investor concerns about US stagflation, a combination of slowing economic growth and tight inflation that further weakens the likelihood of a Federal Reserve interest rate cut.

According to the CME FedWatch tool, as of this writing, traders see only an 11.3% chance of a rate cut in June, compared to a 44.8% chance in September and a 43.8% chance in November. This means market analysts are betting that the US Federal Reserve will keep interest rates steady in May and June, with the first cuts coming later this year.

The Bitcoin bull market is experiencing a “short-term pause.”

Analysts at brokerage Bernstein say the slowdown in spot Bitcoin ETF inflows is not the start of a negative trend but rather a “short-term pause” before BTC resumes its bull run.

Bernstein analysts Gautam Chhugani and Mahika Sapra wrote in a note to clients:

“We do not expect the slowdown in Bitcoin ETFs to become a worrying trend, but believe it will be a short-term pause before ETFs become more integrated with private banking platforms, wealth advisors and more brokerage platforms.”

Analysts highlighted a $150,000 cycle target for Bitcoin price by the end of 2025, citing “unprecedented ETF demand” that has seen $12 billion in spot Bitcoin ETF net inflows since their market debut on January 11.

A new report from Ecoinometrics asks readers to watch out for pivots in financial conditions that “could make or break a Bitcoin bull market.”

The report explains that while spot Bitcoin ETFs have “opened up a new source of demand,” changing macro winds and the U.S. Federal Reserve’s failure to control inflation could spell trouble for the bull market.

“This could lead to another tightening of the financial situation. And that will create a headwind for the bull market.”

The Federal Reserve Bank of Chicago’s National Financial Conditions Index (NFCI), which measures the level of rigidity in the U.S. financial system, is stagnant and at the same level it was in 2022 when interest rate increases began, according to Econometrics.

As you can see in the chart above, NFCI is stagnating, which is a possible explanation for why risk assets like Bitcoin are showing weakness, Econometrics explained.

“If this continues, we are just experiencing a pause in the bull market. But if this is the pivot of the financial picture, the bull market is in trouble.”

“Next week is likely to be a positive catalyst as the HK BTC and ETH spot ETFs begin trading. There is growing interest in what could be a gateway for institutional capital inflows from Asia,” QCP wrote in a note over the weekend.