Capital flows into the cryptocurrency market have sharply declined, dropping from $8.2 billion on April 4 to just $2.38 billion by April 18. This significant decline shows increasing caution among investors due to rising market volatility and macroeconomic pressures.
This sudden slowdown indicates a change in risk appetite, as both individual and institutional investors have reduced their exposure to volatile assets. Despite the upward momentum previously seen in the market, current conditions suggest that investors are reassessing their positions in response to the broader economic environment.
Why is fear dominating the cryptocurrency market?
Sentiment data supports this shift in behavior. The fear and greed index, a measure of market sentiment, has remained steady at 33, indicating a state of fear. This level has remained stable for weeks, suggesting a state of psychological stagnation, where buyers are hesitant to take bold steps.
Historically, prolonged periods of fear have preceded sharp rebounds and deeper corrections. However, the current absence of sentiment volatility suggests hesitation rather than panic, indicating that investors are waiting for stronger indicators on macroeconomic conditions or prices before taking decisive steps.
Inflation fears and cryptocurrency confidence
Adding to the pressures are worsening macroeconomic concerns. Recent data indicates that annual inflation expectations rose by 1.7 percentage points in April, reaching 6.7%, the highest level since 1981. This marks the fourth consecutive monthly increase, with inflation expectations rising by 4.1 percentage points since November 2024.
Moreover, the five-year inflation expectations are currently at 4.4%, the highest since June 1991. At the same time, consumer confidence has fallen to its second-lowest level ever. These figures indicate stagflation, a state of slowing economic growth and rising unemployment rates accompanied by rising prices, leading to increasing concerns in the cryptocurrency market, which is generally considered a high-risk asset class.
Despite the prevailing gloomy atmosphere, there is still a glimmer of hope. Bitcoin (BTC) exchange-traded funds (ETFs) recorded net inflows of $107 million on April 17, bringing the total monthly inflows to $156 million. Over the past three months, net inflows into ETFs have surpassed $1 billion, indicating that institutions have not completely withdrawn from the cryptocurrency market.
While Ethereum funds have maintained their stability, this disparity reinforces Bitcoin's perceived strength as a safer bet. Furthermore, continued ETF inflows may provide the market with some degree of stability and prevent panic-induced capitulation in the short term.
The sharp decline in capital flows and ongoing fear indicate increasing caution in the market. However, stable institutional flows through exchange-traded funds (ETFs) suggest that investors are not completely abandoning the cryptocurrency market. It seems that this is merely a short-term reset driven by macroeconomic concerns, not a structural collapse. If inflation expectations stabilize and sentiment improves, cryptocurrency markets may find a foothold for renewed recovery.