Bitcoin was the main digital asset that experienced outflows, with $243.5 million leaving long-Bitcoin investment products. Ethereum also saw outflows of $11 million. Altcoins were relatively unaffected, with some gaining and others losing small amounts of money.
Investors may have withdrawn their digital asset investments because of concerns about high-profile crypto-related bank failures in the United States, such as Silvergate and SVB Financial. These bank failures caused concerns about weakening fiat-to-crypto on-ramps, and there were also fears about the collateralization of Circle’s USDC stablecoin, which had some reserves parked at these institutions.
Last Friday, Bitcoin fell to test its 200-Day Moving Average and Realized Price in the upper $19,000s, likely causing more worry for investors. Additionally, the Federal Reserve’s hawkish messaging on the need for further interest rate hikes may have contributed to the outflows.
However, the investors who withdrew their crypto holdings missed out on a rally that happened over the past two days. Bitcoin has surged up to the low-$24,000s, an increase of 24% from last Friday’s lows. This rally occurred as the US government rescued Silvergate and SVB depositors from any losses and introduced a new $25 billion liquidity program to prevent further bank runs.
The markets also pulled back on Federal Reserve tightening bets. According to the CME’s Fed Watch Tool, markets now only assign a 65% chance that the Fed will hike interest rates by another 25 bps later this month, compared to a roughly 30% chance of a 50 bps rate hike a week ago. This huge repricing in Federal Reserve tightening expectations has caused a collapse in US bond yields, with the 2-year now back to around 4.0%, having been around 5.0% just days ago.
The US dollar is under pressure due to this huge easing of financial conditions by US authorities to prevent a financial crisis, which is hugely bullish for crypto, as seen in the price action over the past two days. By the end of 2023, money markets are now priced for US interest rates to have fallen back to around or just below 4.0%, which is a positive sign for the digital asset industry.
