Better Than Expected US Economic Data Triggers $305 Million Outflows From Crypto Investment Products
Cryptocurrency investment products have reversed their recent trend of multi-week inflows, experiencing significant outflows driven by stronger-than-expected US economic data.
According to CoinShares’ latest digital asset fund flows report, the past week saw a staggering $305 million withdrawn from digital asset investment products, with US investors leading the charge.
Impact of Strong US Economic Data on Crypto Outflows
The report, covering the week from Aug. 24 to Aug. 31, 2024, highlights that US investors were the most active sellers, contributing to outflows totaling $318 million. This sharp decline coincides with the release of robust US economic data, particularly the Personal Consumption Expenditures (PCE) price index reported by the US Commerce Department on Aug. 30.
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The PCE index, a key inflation gauge closely monitored by the US Federal Reserve, revealed a 0.2% month-over-month increase and a 2.5% year-over-year rise. These figures underscore resilient consumer spending, a primary driver of US economic growth, and suggest that inflation remains a concern despite expectations of a potential rate cut by the Federal Reserve.
Market analysts believe that this strong economic performance has dampened investor appetite for riskier assets like cryptocurrencies, leading to a significant shift in capital flows. CoinShares noted that the crypto asset class could become increasingly sensitive to interest rate expectations as the Fed approaches a potential policy pivot.
Breakdown of Crypto Investment Flows by Country and Asset
The US was not alone in witnessing outflows, though it led the pack. Germany and Sweden reported outflows of $7.3 million and $4.3 million, respectively. In contrast, Switzerland and Canada managed to attract slight inflows, totaling $5.5 million and $13.2 million, respectively.
Bitcoin investment products bore the brunt of the negative sentiment, suffering $319 million in outflows—the largest among all digital assets. This marks a stark contrast to short Bitcoin investment products, which saw a second consecutive week of inflows, accumulating $4.4 million, the highest since March 2024.
Ethereum-based investment products also continued their downward trend, with outflows amounting to $5.7 million. This comes despite the recent launch of Ethereum exchange-traded funds (ETFs) in the US in July 2024, which had initially sparked optimism among investors.
Interestingly, blockchain equities bucked the broader trend, with $11 million in inflows, particularly into Bitcoin miner-specific investment products. This indicates a nuanced approach by investors, who may be seeking exposure to the blockchain sector without directly investing in cryptocurrencies.
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As the US Federal Reserve considers its next moves, the cryptocurrency market is likely to remain on edge. The latest PCE report has already tempered expectations of a substantial interest rate cut, hinting at a more cautious approach by the Fed. CoinShares’ report suggests that cryptocurrency assets will continue to be highly responsive to shifts in economic data and interest rate forecasts.
The ongoing outflows from digital asset investment products underscore the heightened sensitivity of the crypto market to macroeconomic factors, particularly in the US. As investors navigate this complex landscape, the interplay between economic data and crypto sentiment will be crucial in determining the future direction of capital flows.
For now, the strong US economic data appears to have spurred a retreat from cryptocurrencies, at least temporarily, as investors reassess their risk exposure in light of evolving market conditions.
