Digital asset market faces headwinds amid persistent outflows, market uncertainty

Digital asset investment products have experienced six consecutive weeks of outflows, totaling $272 million, according to a May 30 report from CoinShares. This negative sentiment reflects the broader market trends, with investment products being more active than the overall digital asset space.

The report highlighted that Bitcoin experienced a decline of $11 million, remaining the focal point of the outflows. Short-Bitcoin saw a more dramatic reduction, constituting 36% of the total assets under management (AuM).

Altcoins, which had previously been insulated from the negative sentiment, also faced outflows, with Algorand experiencing a 65% drop in its AuM and Ethereum seeing a $5.9 million outflow). Simultaneously, blockchain equities observed minor outflows totaling $3.4 million.

Broader market issues underpin outflows.

The futures contracts market is also impacted, as volumes dropped to their second-lowest point this year, amounting to 767,000 BTC or roughly $20 billion

Binance, which holds about 66% of futures volume contracts, saw trade volume dropping by roughly $10 billion in the past 24 hours. The realized price of Bitcoin reached a high of $20,180, possibly influenced by the debt ceiling decision and $118 million worth of liquidations.

Despite facing options expiry pressure, Bitcoin and Ethereum showed resilience on May 26, with more than $2.2 billion worth of options expiring for Bitcoin, with prices recovering over 5% since.

Ethereum also witnessed a significant options expiry of a notional value of $1.3 billion. The market anticipates an even more significant notional value of over $3 billion in options expiry for June, with a max pain price of $24,000.

The digital asset market faces headwinds amid ongoing outflows, particularly in Bitcoin and select altcoins. This negative sentiment is influenced by various market factors such as futures contracts decline and anticipated rate hikes.

Broader market & macroeconomic issues

Moreover, as the crypto markets have yet to decouple from traditional assets entirely, the broader context of the current market may have a knock-on effect on crypto. For instance, the S&P 500 and Nasdaq Composite experienced significant gains in 2023, driven primarily by tech stocks.

However, the combined market cap of all other S&P 500 companies has declined by 3%, while Bitcoin is up 68% and Ethereum is up 60%. Market anticipation for a 25-basis point rate hike in June is also significant, as PCE inflation surpassed expectations. It is important to remember that Bitcoin has not previously faced fiat currency inflation of this magnitude.

Furthermore, if a potential recession or depression were to occur, it would mark a new experience for Bitcoin, emphasizing the need to comprehend the relationship between traditional finance and cryptocurrencies.

Ultimately, digital assets have shown resilience in the face of options expiry pressure, persistent outflows, and rising inflation over recent weeks, indicating the potential for recovery in the future.