Institutions Flee Crypto Funds, Withdrawing $417 Million in Two Months as Market Awaits Rate Decision

Following last week's sharp selloff, Bitcoin and Ethereum both opened this week with modest declines, falling 0.6% and 1% respectively. According to BitPush terminal data, as of press time, BTC dropped to $25,830 and ETH fell to $1,733. Bitcoin has declined 3.5% over the past seven days, while Ethereum saw a larger drop of 7.5% over the same period.

Hernán Yellati, Head of Global Macro Research at crypto research firm CTF Capital, noted that while the crypto market has primarily reacted to the SEC lawsuits against Binance and Coinbase over the past few days, this week will be dominated by macro events, with the market lacking clear direction in the short term.

He wrote on June 12th: "The conflict between the SEC and the crypto industry is intensifying as market participants and lawmakers criticize the SEC chairman for regulating through enforcement, risking the US abandoning its position as a technology and innovation hub. Meanwhile, other jurisdictions like Hong Kong are inviting US companies to apply for licenses and conduct business outside their jurisdiction."

**Institutional Investors Withdraw $417 Million from Crypto Funds in Two Months**

Institutional investors are fleeing en masse. According to CoinShares' weekly fund report, large crypto investors withdrew $88 million from digital asset funds last week, bringing the total outflow over two months to a staggering $417 million.

Bitcoin funds saw the largest outflows, with $52 million leaving in the past 7 days as institutional investors heavily sold Bitcoin funds, bringing year-to-date outflows to $172 million.

Ethereum funds ranked second in last week's outflows with $36 million total, marking the largest single-week outflow since Ethereum's merge last September.

CoinShares tracks investment activity in cryptocurrencies like Bitcoin, Ethereum, and other altcoins through major exchange-traded products, mutual funds, and over-the-counter (OTC) trusts, publishing findings in weekly reports.

Regionally, last week's selling pressure primarily came from North America, accounting for 87% of total outflows. Canada-based fund 3iQ topped the list with $76.9 million in outflows, while Swiss crypto fund providers saw $9.2 million in inflows and German crypto fund providers saw $9.4 million.

James Butterfill, CoinShares Head of Research, attributed all the selling to monetary policy: "There's no end to rate hikes in sight."

**Short-Term Holders Show Higher Activity**

On-chain data tracked by Glassnode shows that following the SEC lawsuits against Binance and Coinbase, short-term crypto holders demonstrated higher activity, accounting for 76% of recent BTC deposits (typically 60%). Such deposits represent 0.93% of short-term holders' total exchange balances. In contrast, long-term holders showed "no significant reaction to the lawsuit news."

Withdrawals from Binance immediately increased after the SEC announced its lawsuit against the exchange last week. The platform's Bitcoin and Ethereum balances decreased by 40,200 BTC (5.7%) and 324,000 ETH (7.1%) respectively over the past 7 days.

Meanwhile, Binance's BUSD stablecoin balance took the biggest hit, declining by $1.6 billion (20.9%) in the past week. Since FTX's collapse in November 2022, Binance's stablecoin balance has plummeted 75% from $26 billion to just $6.5 billion today. Glassnode noted: "The exchange still holds the largest reserves of any on-chain entity, and their BTC and ETH balances remain quite substantial."

Coinbase saw lower withdrawal volumes than Binance at just 2,300 BTC (0.5%). However, Ethereum withdrawals reached 291,000 ETH (8.0%), potentially indicating growing investor concerns about Coinbase's staking-as-a-service products.

**Macro Events Dominate Direction**

CryptoQuant analysts suggest that despite Bitcoin's subdued price action, the possibility of an upward trajectory hasn't ended as it continues consolidating in the $25,000 to $30,000 range. The analysts explained in a blog post: "According to the short-term holder SOPR (Spent Output Profit Ratio) indicator, when this metric stays in first position for consecutive months and these holders' unrealized value exceeds this level, it indicates strong interest in staying in the market and achieving profitability. The price cycles of 2015 and 2019 are good examples."

Therefore, when comparing the current cycle to 2019, analysts noted that long-term and short-term holder profitability hasn't reached levels high enough to trigger heavy selling pressure, essentially indicating Bitcoin's potential to grow with another wave of demand.

Crypto traders will focus on tomorrow's May CPI data release and Wednesday's Federal Open Market Committee (FOMC) rate decision. Yellati stated: "We expect the rate hike cycle to pause, opening the door for future data-dependent moves. Tomorrow's CPI data will be a key component of the day-after FOMC decision."

Since the policy tightening cycle began in March 2022, the Federal Reserve has raised rates 10 consecutive times. CME FedWatch Tool data shows traders currently expect about a 75% probability that the Fed will pause rate hikes.