Bitcoin, Ethereum Investment Products Bleed $430 Million as Inflation Concerns Flare

Digital asset investment products notched major outflows for the first time this year, bleeding $415 million last week amid investors’ renewed focus on U.S. monetary policy.

Last week’s outflows were concentrated among Bitcoin products like spot ETFs, totaling $430 million as Federal Reserve Chairman Jerome Powell maintained the U.S. central bank “need not be in a hurry” to cut rates, according to CoinShares Head of Research James Butterfill. Those outflows were counteracted by inflows into investment products for Solana, XRP, Sui, and other digital assets, leading to a total of $415 million leaving crypto-based funds last week.

In a report on Monday, Butterfill explained that Bitcoin is “highly sensitive to rate cut expectations,” including those stemming from Powell’s semiannual report to Congress and last week’s hotter-than-expected inflation snapshot.

Over the past week, Bitcoin’s price has dipped 1.4%, ranging between $94,900 and $98,600 before settling around $96,900 on Monday morning New York time.

“I actually think this was a fairly muted reaction,” Butterfill told Decrypt, describing $415 million as small potatoes compared to a $29 billion avalanche of inflows stretching across 19 straight weeks.

Last week’s inflation print showed that inflation accelerated in January for a fourth straight month, potentially complicating the Fed’s fight to tame inflation to its goal of 2% annually.

Though inflation clocked in at 3% in the 12 months through January, per the Consumer Price Index, a “core” gauge of underlying inflation trends rose 5.5% on an annualized basis. That development effectively took rate cuts off the table, analysts told Decrypt.

Traders foresee just a 2.5% chance that the Fed will cut rates at its March policy meeting, while penciling in a 45% chance of an eventual rate cut in July, per CME FedWatch.

Risk assets like stock and crypto tend to thrive amid lower interest rates due to cheaper borrowing and increased market liquidity. However, by supporting economic growth, lower interest can also contribute to inflation pressures the Fed currently fears.

The stumble comes after digital asset investment products saw record inflows last year, absorbing $44.2 billion alongside the launch of spot Bitcoin and Ethereum ETFs, which made it easier for Wall Street firms and retail traders to allocate.

Since the new year began, Bitcoin has continued to have a lion’s share of inflows. Year-to-date inflows for Bitcoin products have reached $5.5 billion, 80% of the $6.9 billion that digital asset investment products have seen.

Still, Ethereum products have led this month in terms of inflows, attracting $785 million alongside the Cboe BZX Exchange’s push to allow for staking rewards to be reflected in the 21Shares Core Ethereum ETF. So far this month, Bitcoin products have lost $22 million.