The cryptocurrency market has seen six consecutive weeks of outflows totaling $9 million, according to new data from CoinShares. While bitcoin and ether saw continued outflows, some altcoins like XRP and Solana saw inflows as investors diversify into higher risk assets.
Outflows Continue But Some Coins See Inflows
The latest report from CoinShares showed that total crypto investment product outflows reached $9 million for the week ending September 24th. This marks the sixth straight week of outflows in the cryptocurrency market.
Bitcoin saw $6 million in outflows, extending its losing streak to three consecutive weeks. Ether also posted its sixth straight week of outflows at $2.2 million.
However, some altcoins saw inflows, signaling renewed interest from investors. XRP saw inflows of $660,000 this past week, while Solana had $310,000 in inflows.
"Investors seem to be becoming more interested in higher risk tokens, with inflows over the last few weeks concentrated in XRP and Solana," the CoinShares report stated.
Europe and US Sentiment Diverges
The report also highlighted diverging sentiment between European and US-based crypto investors.
European crypto products saw $16 million in inflows this past week. However, US-based products registered $14 million in outflows over the same period.
CoinShares attributed this divergence to regulatory uncertainty in the US market. Recent actions by the SEC against crypto companies have spooked US investors.
Meanwhile, average weekly trading volumes dropped to $820 million, well below the 2022 average of $1.16 billion.
What's Next for the Crypto Market?
The recent outflows show continued bearish sentiment hanging over the cryptocurrency market. Bitcoin remains stuck under $27,000 resistance, unable to break higher despite recent potentially bullish events.
The delay of Mt. Gox creditor payouts and the Fed holding rates steady both failed to ignite Bitcoin price action. This suggests the market needs a new catalyst to break out of its months-long slump.
However, the inflows into XRP and Solana show investors are still willing to take on more risk. This altcoin interest could eventually translate into broader market gains if momentum builds. But for now, caution remains the name of the game after a bruising year for crypto.
Can Decentralization Help Crypto Withstand Regulatory Pressure?
The diverging sentiment between US and European investors highlights how regulatory pressure can impact crypto markets. The SEC's aggressive stance has made US investors more cautious.
This is where decentralization could help crypto withstand regulatory pressure. The SEC can target individual companies, but decentralized networks like Bitcoin and Ethereum are more resistant to top-down control. Their open-source nature and lack of a central point of control make it difficult for regulators to clamp down on them directly.
As crypto matures, expect more decentralization to help projects resist regulatory overreach. With Bitcoin as the definitive decentralized network, its price may also benefit from this dynamic long-term.
Prediction: Choppy Waters Ahead Before Any Major Rally
In the near-term, expect continued choppy and directionless price action for Bitcoin and the broader crypto market.
Outflows are likely to persist and volatility will remain elevated as macroeconomic uncertainty continues. This will keep many investors on the sidelines.
However, Bitcoin's bottom is likely in for this cycle after holding support near $18k. Its strong historical track record predicts higher prices over the long-term. But patience will be key.
A fresh rally likely won't materialize until 2023 after digesting 2022's massive declines. This could set the stage for new all-time highs in 2024 and beyond. But expect a bumpy road ahead in the meantime.
Key Questions About the Crypto Market Downturn
What's Causing the Prolonged Crypto Winter?
This extended cryptocurrency bear market is the result of both endogenous and exogenous factors.
Endogenous factors include rampant speculation in 2021, overpriced assets, highly leveraged trading, and projects lacking utility. Exogenous factors like rising interest rates, inflation, and recession fears have also weighed heavily on sentiment.
The downturn was an inevitable correction after 2021's euphoria. Now the market is going through a healthy cleansing of excesses while finding a new rational price baseline. This is setting the foundation for the next bull run.
When Will the Crypto Market Turn Around?
Timing crypto market bottoms is notoriously difficult. However, there are some key metrics to watch that may signal a bottom is in or close:
- Capitulation bottoms marked by extreme fear and panic selling
- Price stabilizing and establishing support over weeks/months
- Decreased volatility and declining trading volumes
- On-chain data showing accumulation by long-term holders
While more downside is possible, Bitcoin holding the $18k level through 2022 is promising. This may indicate the bottom is in already for this cycle.
The next confirmed bullish signal will be BTC reclaiming the $30k level convincingly for an extended period. This could come in 2023 or 2024, initiating the next major crypto rally.