U.S. spot Bitcoin ETFs bled $630.4 million on Wednesday, the worst single-day outflow in over three months, as back-to-back inflation shocks drove a sharp institutional retreat from risk assets.
"A large part of the outflows was driven by this week's U.S. inflation data, which significantly shifted market expectations around Federal Reserve policy," Illia Otychenko, Lead Analyst at CEX.IO, told Decrypt.
"Together, these releases strengthened concerns that the Federal Reserve may consider rate hikes this year," he said.
Otychenko said the inflation data triggered broad risk aversion, which "by extension hit Bitcoin and caused elevated ETF outflows," and flagged rising bearish derivatives positioning as a further warning sign.
"There has been increased deleveraging of long positions and a rising put/call options ratio, both suggesting bearish sentiment has been increasingly building," he added.
Much will now depend on oil prices and developments around the Strait of Hormuz, Otychenko noted, warning that any prolonged disruption could push energy costs higher and “add another inflationary wave,” increasing pressure on crypto markets.
The Bitcoin ETF sell-off had been building for days, with the funds shedding $268.5 million on May 7 and a further $233.2 million on May 12.
Peter Chung, head of research at Singapore-based algorithmic trading firm Presto Labs, cautioned against reading too deeply into the single-day figure.
"Institutions are a diverse bunch. The markets can rally on the back of bullish sentiment of a certain cohort of investors, but the resulting higher price may serve as a strong incentive for another cohort of investors to lock in profits," he told Decrypt, characterizing the activity as "healthy consolidation."
