Institutions flee crypto funds, withdrawing $417 million in two months, and the market awaits interest rate decision

After last week's violent sell-off, both Bitcoin and Ethereum started the week with a slight drop, down 0.6% and 1% respectively. Bitpush terminal data shows that as of press time, BTC fell to $25,830 and ETH fell to $1,733. Bitcoin has fallen 3.5% in the past seven days, but Ethereum has fallen more, down 7.5% in the past seven days.

Hernán Yellati, head of global macro research at crypto research firm CTF Capital , said that while the crypto market has mainly reacted to the SEC vs. Binance and Coinbase lawsuits in the past few days, this week will be dominated by macro events and the market will not see a clear direction in the short term.

“The SEC’s conflict with the crypto industry has intensified as market participants and lawmakers criticize the SEC chairman for regulating through enforcement and risking the U.S. abandoning its position as a center of technology and innovation,” he wrote on June 12. “Meanwhile, other jurisdictions such as Hong Kong are inviting U.S. companies to apply for licenses and operate outside their jurisdiction.”

Institutional investors pull $417 million from crypto funds in two months

Institutional investors are fleeing like crazy. According to Coinshares ’ weekly funding report, large crypto investors withdrew $88 million from digital asset funds last week, bringing the total outflow in two months to a staggering $417 million.

Bitcoin funds had the largest outflows, with $52 million outflows in the past seven days. Institutional investors sold off a large number of Bitcoin funds, and the outflows so far this year have reached $172 million.

Ethereum funds ranked second in outflows last week, totaling $36 million, a figure that marked the largest single-week outflow since Ethereum’s merger last September.

CoinShares tracks investment activity in cryptocurrencies such as Bitcoin, Ethereum and other altcoins by major exchange-traded products, mutual funds and over-the-counter (OTC) trusts and publishes its findings in a weekly report.

The report shows that from a regional perspective, last week's selling pressure mainly came from North America, accounting for 87% of the total outflow. Canada-based fund 3iQ topped the list with outflows of US$76.9 million, while Swiss crypto fund providers had inflows of US$9.2 million and German crypto fund providers had inflows of US$9.4 million.

James Butterfill, head of research at CoinShares, said he believed all the selling was triggered by monetary policy: “There’s no end in sight to rate hikes.”

Short-term holders show higher activity

On-chain data tracked by Glassnode shows that short-term cryptocurrency holders showed higher activity after the SEC sued Binance and Coinbase, accounting for 76% of recent BTC deposits (usually 60%). Such deposits account for 0.93% of the total balance held by short-term holders on exchanges. In contrast, long-term holders "did not significantly react to the news of the lawsuit."

Binance saw an immediate increase in withdrawals following the SEC’s announcement last week. The platform’s Bitcoin and Ethereum balances have fallen by 40,200 BTC (5.7%) and 324,000 ETH (7.1%), respectively, over the past seven days.

Meanwhile, Binance’s BUSD stablecoin balance has been hit the hardest, down $1.6 billion (20.9%) over the past week. Since FTX’s collapse in November 2022, Binance’s stablecoin balance has plunged 75% from $26 billion to just $6.5 billion today. “The exchange still holds the largest reserves of any on-chain entity, and their BTC and ETH balances remain substantial,” Glassnode said.

Coinbase’s withdrawal volume was lower than Binance’s at just 2,300 BTC (0.5%). However, Ethereum withdrawal volume reached 291,000 ETH (8.0%), which may indicate that investors are increasingly concerned about Coinbase’s staking-as-a-service product.

Macro events dominate the trend

CryptoQuant analysts said that despite the sluggish price of Bitcoin, as it continues to consolidate in the range of $25,000 to $30,000, the possibility of its upward trajectory has not yet ended. Analysts explained in a blog post: "According to the short-term holder SOPR (Spent Output Profit Ratio) indicator, when the number of this data remains at the first place for several consecutive months and the unrealized value of these holders exceeds this level, it indicates that they have a strong interest in staying in the market and making a profit. The price cycles in 2015 and 2019 are good examples."

Therefore, when comparing the current cycle to 2019, analysts note that profitability for both long-term and short-term holders has not been high enough to trigger heavy selling pressure, a trend that essentially indicates that Bitcoin has the potential to grow with another wave of demand.

Crypto traders will be watching the May CPI data to be released tomorrow, as well as the Federal Open Market Committee (FOMC) interest rate decision scheduled for Wednesday. Yellati said: "We expect a pause in the rate hike cycle, opening the door to future data-dependent moves. Tomorrow's CPI data will be a key part of the FOMC decision the next day."

The Fed has raised interest rates 10 times in a row since the policy tightening cycle began in March 2022. CME Fedwatch Tool data shows that traders currently expect the probability of the Fed pausing rate hikes to be about 75%.