Risk-off Sentiment Incoming, but Crypto Investment Products Aren’t Listening

Digital asset investment products clocked their fourth straight week of inflows last week, with $76 million pouring into the asset class, according to data from CoinShares. 

Year-to-date inflows for crypto investment vehicles now total $230 million, “highlighting a decisive change in investor sentiment,” James Butterfill, head of research at CoinShares, wrote in a report released Monday. Total investment assets under management in the crypto space have increased nearly 40% since the start of the year, according to Butterfill. 

Bitcoin was the most popular asset, making up 90% of total flows for the week, as investors put $69 million into bitcoin products. Ether, by contrast, which is up more than 35% since the start of the year, saw $700,000 in inflows last week. 

The moves come amid a busy week for macroeconomic news as traders took in US jobs data, the Federal Reserve interest rate decision and other central bank moves last week. The Fed’s decision to opt for a 25 basis point increase calmed markets initially, but more hawkish remarks from central bank head Chair Jerome Powell spooked investors. 

“While there were some promising aspects of the jobs report — cooling wage growth and higher participation — it’s impossible to ignore the fact that the labor market remains red hot,” Craig Erlam, senior market analyst at Oanda, said. “For now, it’s hard to argue that the easier policy move for the Fed is to keep hiking in 25 basis point increments.”

Crypto was trading relatively flat Monday, with bitcoin (BTC) down around 0.2% and ether (ETH) moving into the green with a 0.3% gain. Equities struggled to keep the momentum growing, with the S&P 500 and Nasdaq Composite indexes posting 0.6% and 0.7% losses, respectively, as of 11 am ET. 

Overall, a shift into risk-off sentiment in the coming weeks ahead of the Fed’s next policy-setting meeting in March should not come as a surprise, analysts said. 

“No doubt the Fed will worry about tipping the economy over into a recession that then spirals out of control, but no doubt it is also counting on being able to drop rates fast should unemployment start to move,” Noelle Acheson, editor of Crypto is Macro Now and former head of market insights at Genesis, wrote in a note Monday.

“The market is counting on that, too, and indeed seems to have been pricing that in,” she said.

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