Bitcoin Funds See $319 Million Decline as Investors Prepare to Short

Last week, investors swiftly withdrew funds from Bitcoin exchange-traded funds (ETFs) as the number of individuals speculating on a decline in the price of the leading digital coin surged. According to a report by asset manager CoinShares on Monday, a total of $319 million exited funds from prominent Wall Street players like Fidelity and ARK Invest that offer exposure to Bitcoin. Additionally, short Bitcoin investment products, which are used to bet on a price drop, saw inflows of $4.4 million, the highest since March.

In contrast to the overall trend, BlackRock, the largest asset manager globally and a major Bitcoin ETF issuer, experienced inflows of over $219 million into its iShares ETF during the week.

CoinShares noted that the negative sentiment was primarily driven by robust economic data from the U.S., which reduced the likelihood of a 50-basis point interest rate cut. The report highlighted that cryptocurrencies, in general, are becoming more sensitive to interest rate expectations.

Investors have been anticipating a rate cut by the Federal Reserve after it raised rates to a two-decade high in 2022. Federal Reserve Chair Jerome Powell hinted in August that a policy shift was imminent, leading to expectations of a rate cut this month.

Cryptocurrency markets, alongside U.S. equities, are considered “risk-on” assets, making them more susceptible to price fluctuations compared to other investments. A high-interest rate environment may make these assets less attractive to investors, who might prefer holding cash in safer, interest-bearing accounts.

Recent economic data from the Commerce Department showed a 0.2% increase in the personal consumption expenditures price index over the month and a 2.5% rise from the same period last year. This data, as expected by analysts, was interpreted by markets as less likely to prompt a quarter percentage point rate cut by the Fed, favoring a smaller rate cut instead.

In Europe, investors also divested from crypto funds. Investment products providing exposure to Ethereum, the second-largest cryptocurrency by market cap, experienced outflows totaling $5.7 million. Notably, Ethereum ETFs in the U.S. gained approval from the Securities and Exchange Commission in May.

The current price of Bitcoin stands at $58,622 per coin, having dropped by over 7% in the past week according to CoinGecko data. Despite this decline, the asset remains 20% below its all-time high of $73,737 reached in March following the approval of Bitcoin ETFs in the U.S. market.