The cryptocurrency market experienced significant turbulence in the past week. Crypto investment products saw outflows for the first time in four weeks, totaling $528 million. The sudden shift comes amid growing concerns about a possible recession in the United States and rising geopolitical tensions.
Bitcoin (BTC), bore the brunt of this sell-off with outflows totaling $400 million. This marks a significant reversal after five straight weeks of inflows. Furthermore, the surge in Bitcoin outflows highlights heightened concerns among investors amid the crypto market crash.
Ethereum (ETH) also faced huge outflows, amounting to $146 million, according to a CoinShares report. Since the launch of the Ethereum ETF in the US, net outflows have reached $170 million. While the newly launched US ETF recorded positive inflows of $430 million last week, this was overshadowed by outflows of $603 million from existing Grayscale share trusts. Additionally, small crypto outflows can be traced from European Ether ETPs.
Trading volume in ETPs totaled $14.8 billion last week, representing a lower-than-average share of the total market at 25%. The price correction from Friday's close resulted in a total of $10 billion being wiped from total ETP assets under management (AUM).
Regionally, most of the outflows were concentrated in the United States, which saw crypto outflows of $531 million. Germany and Hong Kong also experienced crypto outflows of $12 million and $27 million respectively. Conversely, Canada and Switzerland saw 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 benefited from the price drop, saw their first measured inflow since June, totaling $1.8 million. Therefore, this indicates a growing bearish sentiment among investors regarding Bitcoin price prospects in the short term.
Furthermore, blockchain equities are not immune to the broader market's massive sell-off. The product experienced outflows of $18 million last week, in line with outflows from broader technology-related ETFs. The background of the surge in crypto outflows is growing concern about a possible recession in the US.
Goldman Sachs recently raised the likelihood of a recession in the US in the coming year to 25%, up from 15% previously. This heightened risk perception is prompting investors to reassess their positions in riskier assets, including cryptocurrencies.
Recently, the Japanese yen (JPY) has fallen by 13%, while the Korean and Taiwanese markets are down almost 10%. Additionally, the price of BTC has fallen by 18% in the past five days, and the S&P futures market has fallen by 4%. In response, the US Fed has reportedly arranged an emergency meeting amid market uncertainty.
Therefore, market experts expect an interest rate hike of 0.5% after the meeting. Analyst Ran Neuner opined, "The Fed needs to act very quickly to avoid the collapse that occurred in 2008."
Market analysts believe interest rate cuts could provide relief. Historically, interest rate cuts by the Fed have stabilized markets, especially during the 2007-2008 financial crisis. "Cutting interest rates saved the housing market in 2007," said one analyst.
A quick response by the Federal Reserve is essential to avoid further economic instability. This emergency meeting emphasizes the seriousness of the current market situation and the need for immediate action. However, Bitcoin critic and renowned economist Peter Schiff warned of a recession if the US Fed cuts interest rates.