Crypto witnessed an outflow of $415 million last week, signaling a significant shift from the previous positive streak seen this year.
The dip is largely attributed to Federal Reserve Chair Jerome Powell's recent hawkish statements and higher-than-expected US inflation figures.
Bitcoin Loses Ground as Crypto Outflows Hit $415 Million
According to the most recent CoinShares report, crypto outflows totaled $430 million last week. Bitcoin, which is sensitive to interest rate projections, bore the impact of the investor retreat, indicating a general risk aversion sentiment in the crypto sphere.
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The recent negative flows follow the Fed's indication that inflation shot up to 3% year-on-year in January, surpassing forecasts. Similarly, core inflation hitting 3.3% raised eyebrows in the market.
In response, crypto investors reacted negatively, with the overall market cap dropping by 5% and Bitcoin slipping below $95,000 immediately. The community was particularly concerned about Powell's reluctance to rush into interest rate cuts.
Powell emphasized the need for sustained elevated interest rates to combat inflation during his congressional testimony, dashing hopes of early rate cuts. This development unsettled the crypto markets, as speculative assets tend to suffer under higher interest rates.
Analyst Mike McGlone noted, "A shift in the wealth effect could be crucial in curbing inflation, with highly speculative cryptos being the first in line... Expecting inflation to ease until risk assets fluctuate might be unrealistic."
Given the additional pressure from US President Donald Trump's tariffs on countries like Canada, Mexico, and China, Powell's stance added further weight on risk-on assets. The Fear and Greed Index for Bitcoin slid into 'Fear' territory post the CPI release, hinting at growing uncertainty among investors.
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Subsequently, the index has hovered in neutral territory, portraying ongoing uncertainty before the release of FOMC minutes this week.
With most of last week's crypto outflows amounting to $464 million originating from the US, CoinShares researcher James Butterfill highlighted the strong reaction of US-based investors to local economic cues.
"The outflows seem to have been triggered by Chair Jerome Powell's congressional appearance, where he hinted at a more hawkish monetary policy stance, along with US inflation surpassing estimates... The majority of outflows came from the US, with most other countries relatively unaffected by the news," reads an excerpt from the report.
First Net Crypto Outflows in 2025
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Meanwhile, the $415 million crypto outflow marks the first net withdrawal from digital asset investments in 2025, breaking the chain of positive flows. Just a week prior, crypto inflows had soared to $1.3 billion, highlighting the swift shift in sentiment in response to macroeconomic conditions.
Before this reversal, the market had witnessed a series of strong inflows, extending the positive trend since the year's outset. The first week of January welcomed $585 million in inflows, showcasing early-year investor optimism. Subsequently, inflows surged to $2.2 billion later in January amid positive sentiments surrounding President Trump's inauguration. However, early February saw a slowdown to $527 million as China's DeepSeek drained liquidity.
These numbers underscore how swiftly investor sentiment can change based on economic indicators and policy cues.
It's noteworthy that the impact of inflation data was particularly visible in Bitcoin ETF outflows, where funds dipped from $56.76 million to $243 million as investors reacted to inflation and Powell's stance on rate cuts.
On the other hand, Ethereum ETFs displayed more resilience, avoiding a similar flight of capital. The latest CoinShares report suggests that Bitcoin was more significantly affected than Ethereum, hinting at potential shifts in digital asset allocations amidst changing macroeconomic conditions.
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This is in line with a recent JPMorgan survey, revealing that 51% of traders consider tariffs and inflation as the primary market influencers in 2025.
Apart from these, 41% of participants expressed heightened concerns about volatility, particularly due to unpredictable political events.
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The upcoming FOMC meeting minutes could potentially impact crypto inflows or outflows this week, given the current market dynamics.