Bitcoin and Ethereum ETFs See Record Outflows as Geopolitical Tensions Escalate

After a period of robust inflows, Bitcoin [BTC] exchange-traded funds (ETFs) experienced a notable reversal, marking a record outflow.

Bitcoin (BTC) exchange-traded funds (ETFs) observed a drastic shift in direction last week, pivoting from a period of robust inflows to a notable reversal, ultimately leading to a record outflow.

However, while BTC ETF inflows had seen a streak of 26 consecutive days, the tides turned as eleven U.S. spot Bitcoin ETFs faced a collective outflow of $242.6 million on the 1st of October. This shift marked the largest outflow in nearly a month, following the last major outflow on the 3rd of September, which saw a $288 million exodus from the ETF.

Among the ETFs that faced the greatest outflows was Fidelity’s FBTC, which alone accounted for $144.7 million in outflows. Other significant outflows were seen in ARK 21Shares’ ARKB, which saw $84.3 million withdrawn, and Bitwise’s BITB, which saw a $32.7 million exodus. Meanwhile, BlackRock’s IBIT saw a positive influx of $40.8 million, and notably, its last outflow was 15 trading days ago, highlighting a mixed sentiment within the Bitcoin ETF market.

What’s behind the decline?

The recent downturn in the Bitcoin and cryptocurrency markets can be largely attributed to the escalating tensions between Israel and Iran. In response to Israel’s actions against Hezbollah, Iran carried out missile strikes, which fueled further market uncertainty and led to significant sell-offs in the cryptocurrency and stock markets.

This conflict is not new; earlier this year, Iran retaliated with drone and missile attacks that caused Bitcoin to drop over 8%. With reports indicating that the current situation may worsen, the potential for further negative impacts on the crypto market remain high.

Commenting on which precious metals' analyst Jesse Colombo said.

Highlighting the impact of geopolitical tensions on the crypto markets, precious metals' analyst Jesse Colombo remarked on the inverse correlation between stock markets and gold prices, observing that gold prices typically rise when stock markets decline.

Colombo noted that the escalating tensions in the Middle East and the possibility of further conflict drove investors towards gold, leading to a rise in its prices.

He added that this phenomenon occurs because gold is widely perceived as a safe-haven asset during times of market turbulence or geopolitical unrest.

Ethereum ETFs followed suit

In a similar vein, Ethereum [ETH] ETFs also saw a notable decline, following the trend observed in Bitcoin ETFs. While the Ethereum ETF had not seen a prolonged inflow streak like its Bitcoin counterpart, it had recently recorded some significant inflows.

However, as of the 1st of October, the tables turned as cumulative outflows for Ethereum ETFs totalled $48.6 million. Grayscale’s ETHE led the charts with the highest outflow of $26.6 million, followed by Fidelity’s FETh and Bitwise’s ETHW, which saw outflows of $25 million and $9 million, respectively. While most Ethereum ETFs reported zero flows, 21Shares’ CETH and VanEck’s ETHV bucked the trend, posting inflows of $1.2 million and $2.7 million, respectively.

Geopolitical tensions impact broader markets

Unsurprisingly, the impact of escalating tensions in the Middle East extended beyond ETFs, affecting the entire cryptocurrency market. For instance, the global crypto market cap fell to $2.17 trillion, facing a decline of 4.10% as reported by CoinMarketCap. Bitcoin’s value dropped over 3%, while Ethereum saw a sharper decline of more than 6% in just 24 hours.

In contrast, traditional commodities like gold and crude oil experienced significant gains; gold prices rose by 1.4%, reaching $2,665 per ounce, close to an all-time high, as reported by Goldprice.org.

Crude oil prices surged nearly 7%, hitting $72 per barrel. Additionally, both bonds and the U.S. dollar strengthened following Iran’s missile strikes targeting Israel on the 1st of October, underscoring the broader market volatility amid geopolitical unrest.

Echoing Colombo’s sentiment, Li Xing, financial markets’ strategist consultant of Exness put it best when he said,

“The escalating conflict in the Middle East has prompted investors to seek security in gold, bolstering its appeal amidst broader market uncertainty.”

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