Capital flows into the cryptocurrency market have sharply declined, falling from $8.2 billion on April 4 to just $2.38 billion by April 18. This significant drop shows increasing caution among investors due to rising market volatility and macroeconomic pressures.
This sudden slowdown indicates a shift in risk appetite, as both individual and institutional investors have reduced their exposure to volatile assets. Despite the upward momentum the market previously experienced, current conditions suggest that investors are reevaluating 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 constant for weeks, suggesting a state of psychological stagnation, where buyers are hesitant to take bold steps.
Historically, long 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 the macro economy or prices before taking decisive steps.
Inflation concerns and cryptocurrency confidence
Additionally, the pressures have been exacerbated by worsening macroeconomic fears. 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, five-year inflation expectations currently stand at 4.4%, the highest level since June 1991. At the same time, consumer confidence has dropped 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 increased concerns in the cryptocurrency market, which is generally considered a high-risk asset class.
Despite the prevailing gloomy atmosphere, there remains a glimmer of hope. Bitcoin (BTC) ETFs recorded net inflows of $107 million on April 17, bringing total monthly inflows to $156 million. Over the past three months, net inflows into ETFs have exceeded $1 billion, indicating that institutions have not completely withdrawn from the cryptocurrency market.
While Ethereum ETFs have maintained their stability, this disparity underscores Bitcoin's perceived strength as a safer bet. Furthermore, continued ETF inflows may provide the market with a degree of stability and prevent panic-induced capitulation in the short term.
The sharp decline in capital flows and ongoing fears indicate increasing caution in the market. However, the steady institutional flows through exchange-traded funds (ETFs) suggest that investors are not completely giving up on the cryptocurrency market. Rather, it seems to be 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.