Bitcoin Leads Crypto Outflow With $400M Lost Amid Recession Fears

August 5, 2024

The cryptocurrency market experienced significant turbulence last week. Crypto investment products saw outflows for the first time in four weeks, amounting to a staggering $528 million. This sudden shift comes amid escalating fears of a looming recession in the United States and rising geopolitical tensions.

Crypto Outflow Surges Beyond $500 Million

Bitcoin (BTC), the flagship cryptocurrency, bore the brunt of this sell-off, witnessing outflows totaling $400 million. This marked a significant reversal following five consecutive weeks of inflows. Moreover, the surge in Bitcoin outflows highlights the heightened anxiety among investors amid crypto market crash.

Ethereum (ETH) also faced substantial outflows, amounting to $146 million, according to a

CoinShares report. Since the launch of Ethereum ETFs in the US, net outflows have reached $170 million. Although the newly launched US ETFs recorded positive inflows of $430 million last week, this was overshadowed by the $603 million outflows from the incumbent Grayscale trust. In addition, minor crypto outflow was witnessed from European Ether ETPs.

Trading volumes in ETPs totaled $14.8 billion last week, representing a lower-than-average proportion of the total market at 25%. The price correction from Friday’s close resulted in a staggering $10 billion being wiped off the total ETP assets under management (AUM).

Regionally, the majority of outflows were concentrated in the United States, which saw $531 million in crypto outflow. Germany and Hong Kong also experienced crypto outflow of US$12 million and $27 million, respectively. Conversely, Canada and Switzerland viewed the price weakness as an opportunity to add to their holdings, with inflows of $17 million and $28 million, respectively.

Meanwhile, Short-bitcoin investment products, which profit from declining prices, saw their first measurable inflows since June, totaling $1.8 million. Hence, this indicates a growing bearish sentiment among investors regarding near-term prospects of Bitcoin price.

Furthermore, blockchain equities were not spared from the broader market sell-off. These products experienced further outflows of $18 million last week, in line with outflows from broader tech-related ETFs. The backdrop of the crypto outflow surge is a growing concern about a potential recession in the US.

Also Read: Breaking: US Fed Calls Emergency Meeting As Japan Markets Collapse

Recession Fears Grow

Goldman Sachs recently raised the probability of a US recession in the coming year to 25%, up from the previous 15%. This heightened risk perception is driving investors to re-evaluate their positions in riskier assets, including cryptocurrencies.

Recently, the Japanese yen (JPY) has dropped by 13%, while the Korean and Taiwanese markets are down nearly 10%. Moreover, BTC price has seen an 18% decline over the past five days, and S&P futures have fallen by 4%. In response, the U.S. Fed has reportedly arranged an emergency meeting amid market uncertainty.

Hence market experts expect a 0.5% interest rate cut after the meeting. “This is the moment we have been waiting for,” said CNBC host Ran Neuner. He added, “The FED will need to react really fast to avoid a meltdown that could make 2008 look like a joke. It’s an election year. I’m expecting emergency action.”

Market analysts believe an interest rate cut could provide relief. Historically, Fed rate cuts have stabilized markets, notably during the 2007-2008 financial crisis. “Interest rate cuts saved the housing market in 2007,” stated one analyst.

The Federal Reserve’s quick response is crucial to prevent further economic instability. The emergency meeting underscores the gravity of the current market conditions and the need for immediate action. However, Bitcoin critic and renowned economist Peter Schiff cautioned a recession if the U.S. Fed reduces interest rates.

Also Read: Crypto Crash: Liquidations Cross $1 Billion As Japan’s Nikkei Drops 13%