Crypto fund outflows hit $1.7 billion as hawkish Fed expectations drive defensive rotation

Digital asset investment products recorded $1.7 billion in outflows last week, marking a second consecutive week of heavy redemptions that pushed year-to-date flows into negative territory for the first time in 2025 as investors fled risk assets amid expectations of tighter Federal Reserve policy and heightened geopolitical uncertainty.

Assets Under Management Continue to Slide

Since reaching a peak in October 2025, assets under management across crypto investment vehicles have declined by approximately $73 billion. Analysts attribute the decline to a combination of falling token prices and sustained Crypto ETF outflow, which has drained liquidity from core products.

The trend reflects a broader reassessment of risk as macroeconomic uncertainty persists and investors prioritize capital preservation over speculative growth.

Federal Reserve Policy and Geopolitics Drive Withdrawals

James Butterfill, head of research at CoinShares, said the latest Crypto ETF outflow stems from multiple overlapping pressures that have unsettled investors.

> “We believe this reflects a combination of factors, including the appointment of a more hawkish US Federal Reserve Chair, continued whale selling associated with the four-year crypto cycle, and heightened geopolitical volatility,” Butterfill wrote.

Those forces have strengthened the US dollar and tightened financial conditions, making risk assets less attractive. According to CoinShares data, the United States accounted for $1.65 billion of the total weekly Crypto ETF outflow, highlighting the market’s sensitivity to shifts in Federal Reserve expectations.

Bitcoin and Ethereum Bear the Brunt

The sell-off was broad-based, with flagship assets absorbing the majority of withdrawals linked to the ongoing Crypto ETF outflow. Bitcoin led losses, shedding $1.32 billion in a single week as investors cut exposure to the market’s largest cryptocurrency.

Ethereum followed with $308 million in outflows, suggesting that even assets often viewed as long-term structural plays are not immune to the defensive repositioning underway.

Altcoins Not Spared as Risk Appetite Fades

The defensive rotation extended beyond the majors. XRP recorded $43.7 million in withdrawals, while Solana lost $31.7 million, reinforcing the view that the current Crypto ETF outflow reflects a systemic reduction in risk rather than asset-specific concerns.

Market participants say the data points to a retreat from higher-beta positions as volatility remains elevated and macro clarity remains elusive.

Short Bitcoin Products Gain as Hedging Increases

Despite the negative tone, not all segments saw capital exit. Short Bitcoin investment products attracted $14.5 million in inflows, pushing year-to-date assets up 8.1%.

The inflows suggest traders are increasingly hedging against further downside rather than positioning for a swift recovery, a behavior consistent with late-cycle Crypto ETF outflow dynamics.

Tokenized Metals Emerge as a Rare Bright Spot

One notable exception to the outflow trend was a group of so-called “Hype” investment products, which drew $15.5 million in new capital. These inflows were largely linked to rising interest in tokenized precious metals.

Analysts say tokenized gold and similar assets are benefiting from a renewed store-of-value narrative as investors seek shelter from volatility tied to the broader Crypto ETF outflow.

A Market Squarely in Defensive Mode

Taken together, the data paints a picture of a market firmly on the defensive. Persistent Crypto ETF outflow, combined with falling prices and shrinking assets under management, suggests confidence remains fragile.

Butterfill noted that a reversal in sentiment would likely require a shift in several key variables, including softer US economic data, the Crypto ETF outflow stabilizes in the coming weeks will depend heavily on upcoming US macroeconomic events and signals from the Federal Reserve. Until then, analysts expect investors to remain cautious, with capital gravitating toward hedging strategies and alternative assets rather than core crypto exposure.

For now, the message from fund flows is clear: risk appetite has cooled, and defensive positioning continues to dominate as uncertainty clouds the outlook for digital assets.