Bitcoin ETFs face record outflow as inflation fears rise

On January 8, 2025, U.S.-listed bitcoin (BTC) and ether (ETH) exchange-traded funds (ETFs) experienced significant withdrawals as macroeconomic uncertainties loomed over the cryptocurrency market. Eleven bitcoin ETFs faced a combined net outflow totaling $582 million, which represents the second-largest outflow since these alternative investment products began trading a year ago. The highest withdrawal previously recorded was $680 million on December 19, 2024. Within this context, Fidelity's FBTC led the outflows, experiencing a staggering loss of $258 million, while BlackRock's IBIT recorded an outflow of $124 million. Additionally, ether ETFs had their own struggles, shedding $159.3 million—this was the highest withdrawal since July 26, 2024, when $162 million was removed from these funds. The backdrop of these substantial withdrawals is rooted in renewed fears surrounding U.S. inflation, which has significantly impacted the overall performance of risk assets, including cryptocurrencies. Over the previous three days leading up to the reports, the price of bitcoin dropped nearly 8.5%, further complicating the market dynamics as investors felt the weight of macroeconomic uncertainties. Notably, the recent minutes from the Federal Reserve's meeting on December 18, 2024, suggested that central bank officials were leaning towards a slower pace of policy easing, raising concerns among investors about potential inflationary impacts stemming from the incoming administration under President Donald Trump. Despite these challenges, some analysts maintain an optimistic outlook, hoping for a rebound in cryptocurrency prices following the forthcoming nonfarm payrolls report scheduled for January 10, 2025. The current climate suggests that while the market is faced with immediate challenges, there may be potential for recovery as key economic indicators are released. As the situation progresses, it will be crucial for investors to remain attuned to macroeconomic factors influencing market conditions, particularly regarding inflation and central bank policies. Understanding these dynamics is essential for predicting future movements of both bitcoin and ether, especially in the context of ongoing volatility in the bond markets and broader financial systems that influence investor sentiment and trading activity. Ultimately, the vast outflows from BTC and ETH ETFs underline a growing caution among investors regarding the potential impacts of inflation and fiscal policy shifts, leading to heightened volatility and uncertainty in the cryptocurrency landscape. The actions taken by large investment vehicles during these tumultuous times will likely shape the near-term trajectory of these digital assets and overall market performance.