Digital Asset Products Experience Significant Outflows Amid Market Volatility

Summary:
Digital asset investment products faced substantial withdrawals last week, totaling $2 billion, the largest since February. Over three weeks, the total outflows reached $3.2 billion, primarily driven by uncertainties in monetary policy and the selling activities of large cryptocurrency holders. Bitcoin and Ethereum saw the most significant withdrawals, while multi-asset funds showed modest growth.

Key Takeaways

Billions in Outflows: Digital asset products had $2 billion in outflows last week, totaling $3.2 billion over three weeks.
Major Cryptocurrencies Affected: Bitcoin and Ethereum products saw the largest withdrawals, while multi-asset funds gained $69 million in inflows.
U.S. Drives Outflows: The majority of the outflows, amounting to $1.97 billion, originated from U.S.-based products.
Market Reaction: A nearly 10% drop in Bitcoin prices raised concerns about institutional interest, with analysts citing this as a potential start of a “mini bear market.”

Digital asset products see billions in outflows amid volatility - 1

Major Withdrawals Impacting Digital Asset Products

Digital asset investment products experienced a staggering $2 billion in outflows last week, marking the most substantial weekly withdrawals since February, as reported by industry data. The total withdrawals have now accumulated to $3.2 billion over the past three weeks, driven by various factors including uncertainty regarding monetary policy and selling pressure from large holders of cryptocurrencies.

Highlighting the decline, data indicates that Bitcoin and Ethereum products experienced the largest withdrawals. In contrast, multi-asset funds managed to attract modest inflows during this period.

Bitcoin Bitcoin and Ethereum experienced price drops which resulted in a decrease in total assets under management within digital asset exchange-traded products, plunging by 27% from an early-October high of $264 billion, down to $191 billion.

Where the Outflows Are Coming From

The United States was primarily responsible for outflows, seeing a significant $1.97 billion exiting U.S.-based products. Other regions registered smaller outflows; Switzerland saw $39.9 million leave, while Hong Kong recorded $12.3 million in outflows. Germany was the sole major market to report inflows, recording $13.2 million in new capital.

Last week, Bitcoin products specifically faced $1.38 billion in withdrawals, totaling around 2% of all Bitcoin ETP assets under management over the past three weeks. Ethereum products also saw substantial outflows of $689 million, which represents about 4% of its ETP market. Additionally, Solana and XRP products sustained smaller withdrawals of $8.3 million and $15.5 million, respectively.

Shift Towards Diversification Amidst Market Corrections

Despite the overall outflows, multi-asset investment products attracted $69 million in inflows during the three-week span, as investors sought diversification strategies in response to market conditions. Furthermore, Short-Bitcoin ETPs gained traction as traders adopted more defensive market positions.

U.S. spot Bitcoin ETFs marked a third consecutive week of losses, experiencing $1.1 billion in net outflows—this represented the fourth-largest weekly withdrawal recorded. This trend coincided with a notable decline of nearly 10% in Bitcoin prices, prompting concerns about institutional demand for these products.

As noted by Matrixport, this downturn reflects a weakening market momentum, dwindling ETF inflows, and reduced commitment from long-term cryptocurrency holders amidst a backdrop lacking significant macroeconomic catalysts. The firm indicated that this trend may signal the emergence of a “mini bear market.” They suggested that Bitcoin’s next significant movement would likely hinge on forthcoming policy decisions from the Federal Reserve.

Positivity amid Declines in Other Areas

In a contrasting note, spot Solana ETFs saw $12 million in inflows on Friday, extending their streak to 13 consecutive days since launching on October 29. However, despite this influx, Solana dropped 15% over the week, and Ether fell 11%, illustrating a general softness within cryptocurrency markets.