The much-anticipated ‘Uptober’ and Q4 rally remains elusive as institutions intensify crypto sell-offs. In the second week of October (12-18th), U.S. spot crypto ETFs posted another round of outflows.
U.S. Spot Ethereum [ETH] ETFs bled $320M, more than Bitcoin ($228M), Solana ($25.5M), and Hyperliquid ($17.5M) combined.
Globally, digital asset investment products saw $434M outflows, with CoinShares’ head of research James Butterfill calling it “clear deterioration in sentiment.”
Higher expected rates lift real yields and the opportunity cost of holding a non-yielding asset, while tighter financial conditions shrink the liquidity available to risk assets generally. $434M outflows have followed, a clear deterioration in sentiment since the CPI release.
Amid inflation fears and institutional risk-off, Bitcoin price dropped to $80K, ETH was barely holding above $2.4K, while SOL appeared ready to crack below $100.
On the other hand, HYPE was down nearly 20% from its record peak of $97.9 and could slip to its September low of $75.
But the macro pressure is far from over. So, will the short-term supports be defended by Bitcoin, ETH, SOL, HYPE, and others?
Will the crypto ETF outflows extend?
The macro pressure has clearly reset the market sentiment, as CoinShares noted. As of writing, the “extreme greed” at the end of Q3 has flipped to ‘neutral.’
Although the third week of October is not packed with major macro events, the last week heading into the Fed rate decision (Oct. 28th) could trigger another round of volatility.
According to CoinShares, any strong recovery for Bitcoin and the broader market could only be confirmed if the macro pressure is lifted.
For Bitcoin, the near-term setup is therefore difficult rather than fundamentally bearish. The market needs either clearer evidence that inflation is cooling or enough weakness in activity to remove the threat of further tightening.
The market expects the Fed to keep interest rates unchanged at the upcoming FOMC meeting.
Still, there is a 97.5% chance of a 0.25% hike in early December. As such, the “threat of further tightening” is still there, just pushed towards the end of the year.
Market positioning
On the Options market front, most of the volume skewed towards puts (red bars denoting hedging or downside protection). Key levels of interest for a potential downside move were $80K, $78K, and $75K.
That said, calls (bullish bets, green bars) were thinly spread between $83K-$90K. As such, if macro pressure intensifies towards the end of October, a dip below $80K may not be ruled out.
Final Summary
- Crypto ETFs saw $494M in weekly outflows led by Ethereum
- CoinShares cautioned that the sentiment could worsen if the macro landscape does not improve