Crypto Funds Experience Record Outflows: Is A Bear Market Starting?

The total crypto market cap declined by over 10% in the past week as widespread price correction continues among various digital asset classes. In particular, crypto investment funds, i.e, ETFs, have been significantly impacted by this extended price downswing, with institutional investors pulling out deposits in droves. 

According to XWIN Research Japan, this development, among other factors, points to a budding bearish market as investors structurally rotate capital to seek less-risky and more stable ventures.

Crypto Market Entering A Structural Demand Decline – Here’s Why

In a QuickTake post on CryptoQuant, XWIN Research Japan, a digital asset market analysis firm, postulates that Bitcoin’s recent price losses may be indicative of a structural change in market trend rather than a mere correction. This claim is based on several factors that suggest that investors are systematically deleveraging in the crypto market.

One of these factors is netflows into crypto investment funds, which dropped by $2 billion in the last week, representing the largest ever decline since February. Since the start of November, XWIN Research Japan notes that cumulative withdrawals from these ETFs have hit $3.2 billion, with Bitcoin and Ethereum experiencing net outflows of $1.4 billion and $689 million, respectively. However, the asset under management (AUM) of these has also declined by 27% from the October peak value, indicating that the recent heavy losses reflect a bearish shift in the market structure rather than a brief negative sentiment.

Meanwhile, the Coinbase Premium Gap, which has now turned negative for the past few weeks, adds some depth to this cautious insight. In particular, XWIN Research notes a resemblance with the previous decline seen from February to May, when US institutions maintained a steady selling pressure in the market. Another important bear market indicator highlighted by XWIN analysts is the Stablecoin Supply Ratio (SSR), which has crashed to near-yearly lows, suggesting there are many stablecoins relative to BTC. However, while this development may indicate a higher buying power among investors, it does not communicate a bullish signal.

XWIN Research explains this is because the low SSR is driven by a drop in Bitcoin’s market cap rather than a rise in stablecoins. Therefore, there has been no new liquidity, indicating a weak market buying power that could potentially result in a sustained downtrend.

Crypto Price Overview

At the time of writing, the total crypto market cap is valued at $2.89 trillion, reflecting a slight decline of 1.75% in the past 24 hours. Meanwhile, the daily trading volume is up by 20.93% and valued at $250.9 billion. 

According to XWIN Research Japan, a reversal in bearish fortunes can only come if the crypto market sees a resurgence in stablecoin inflows, coupled with a normalization of the Coinbase premium fall and rise in ETF netflows. Barring these developments, crypto investments hold high potential for sustained downswing. 

Featured image from Barron’s, chart from Tradingview