Concerns from the Fed Lead to $1.3B in Crypto Outflows – Has Risk Appetite Diminished?

The excitement around digital assets in 2026 was quite brief. After gaining $1.5 billion in inflows in the initial days of the year, the market quickly experienced a reversal.

Key Takeaways

The digital asset market saw $1.3 billion in outflows within four days as investor sentiment shifted.
Concerns regarding the Federal Reserve's interest rate policies have cooled risk appetite among institutional investors.
Regional analysis shows that the U.S. experienced significant outflows, while Germany, Switzerland, and Canada reported inflows.
While Bitcoin faced outflows, altcoins like XRP and SOL attracted positive inflows reflecting selective investment behavior.
Positive ETF data suggests renewed investor confidence, potentially setting the stage for market recovery.

Crypto outflows breaks record

Within just four days last week, investment products faced outflows totaling $1.3 billion, nearly wiping out early gains and indicating a sudden change in market sentiment. By the end of the week, digital asset funds recorded $454 million in net outflows, showing a swift reassessment of risk.

According to CoinShares data, this shift in sentiment was primarily influenced by a decrease in expectations regarding a Federal Reserve rate cut in March.

Cooling Expectations from the Fed Impact Risk Appetite

Currently, the largest challenge for digital assets stems from the United States.

At the beginning of 2026, many anticipated that the Federal Reserve might reduce interest rates as early as March. However, this optimism has diminished following stronger-than-anticipated economic indicators revealing resilience in the service sector and a tight job market.

For institutional investors, high interest rates are particularly significant. Elevated rates support a strong U.S. dollar and attractive bond yields, making safer assets more appealing compared to riskier ones like cryptocurrencies. This explains why just four days of outflows almost completely negated January's early inflows; capital reacts quickly to changes in Fed expectations.

Furthermore, geopolitical tensions are likely contributing to this shift, especially uncertainties surrounding Venezuela and the United States. Escalating political and economic issues in Venezuela, coupled with broader worries about U.S. foreign policy and regional stability, have introduced additional risks for global investors. In such circumstances, institutions typically pull back from volatile assets like crypto, prioritizing liquidity and capital preservation until political clarity improves.

Regional Breakdown of Crypto Flows

However, it’s important to note that the selling pressure was predominantly observed in the U.S., not globally.

According to CoinShares data, the U.S. experienced $569 million in outflows last week, making it the sole region with negative flows. In contrast, Germany saw inflows of $58.9 million, Switzerland $21 million, and Canada $24.5 million.

This divergence indicates that investors are particularly responding to U.S. monetary policy changes rather than broader geopolitical issues.

Bitcoin Dips While Altcoins Gain Interest

Despite total outflows hitting $454 million, the details reveal that there is selective movement rather than a complete withdrawal from crypto.

Bitcoin (BTC) saw a reduction of $405 million as investors sought to lessen their exposure without anticipating a drastic price decline. Ethereum (ETH) also experienced $116 million in outflows.

Conversely, XRP saw the highest inflows at $45.8 million, buoyed by improving regulatory clarity. Solana (SOL) attracted $32.8 million, continuing to appeal to institutions, while Sui (SUI) gained interest with an inflow of $7.6 million.

At this time, Bitcoin was trading at $92,330, and Ethereum at $3,137. Solana was priced at $141, Ripple at $2.06, and Sui at $1.80, all showing signs of upward movement according to CoinMarketCap.

What’s Next?

Finally, ETF data reflects a renewed sense of confidence in the market.

Bitcoin ETFs reported inflows of $116.7 million, and various altcoin ETFs, including those for Ethereum, XRP, and Solana, registered inflows of $5.1 million, $15.04 million, and $10.8 million, respectively. This occurred in conjunction with a $120 billion decline in the overall crypto market value last week.

Thus, if Bitcoin can maintain its value above $92,000 and breach the $94,000 mark, the market could regain momentum as we move into February.