Spot Bitcoin exchange-traded funds (ETFs) are witnessing a sharp decline in investor interest, driven by global trade uncertainties and mounting recession concerns. From March 28 to April 8, data from Farside Investors reveals that $595 million exited Bitcoin ETFs. Even after the U.S. government paused most import tariffs on April 9, an additional $127 million left these funds, resulting in total net outflows of $772 million.
Surprisingly, Bitcoin’s price surged to $82,000 on April 9, marking its highest point in weeks. However, this rally failed to restore confidence among institutional investors and ETF holders, sparking questions about the broader market mood.
Why Investors Are Abandoning Bitcoin ETFs Despite Price Gains
Historically, Bitcoin price spikes draw capital into spot ETFs. Yet, this time, macroeconomic fears seem to outweigh the cryptocurrency’s upward momentum. Investors are growing cautious, favoring traditional safe-haven assets over volatile cryptocurrencies like Bitcoin.
Rising tariff-related inflation worries, tighter credit markets, and signs of an economic slowdown are dampening enthusiasm for high-risk investments. These factors are pushing capital away from Bitcoin ETFs and toward more stable options like cash and government bonds.
Credit Market Struggles Intensify Risk Aversion
Michael Weidner, co-head of global fixed income at Lazard Asset Management, highlighted worsening credit market conditions as a key concern. In a Reuters interview, he noted that liquidity in credit markets has significantly declined, prompting investors to scale back on risky assets. Instead, they are boosting allocations to cash and government securities.
Weidner cautioned that a credit crunch could curb business investments and consumer spending, even if U.S. Treasury yields hold steady. Lenders, sensing higher risks, are tightening loan availability, which restricts capital for companies and individuals alike.
Ross Mayfield, an investment strategy analyst at RW Baird, shared similar worries. He suggested that Federal Reserve interest rate cuts might offer only temporary relief. “In a stagflation scenario triggered by trade tariffs, borrowing costs for both high-yield and investment-grade companies will climb,” Mayfield explained.
Corporate Bond Spreads Signal Rising Caution
Dan Krieter, director of fixed income strategy at BMO Capital Markets, pointed to a critical shift: corporate bond spreads recently saw their largest weekly increase since the March 2023 banking crisis. This spread, which measures the gap between corporate and government bond yields, reflects investor risk tolerance. A wider spread indicates that investors are demanding greater returns to hold riskier corporate debt.
This trend underscores growing unease about persistent inflation and economic pressures, which could elevate corporate default risks. As a result, speculative assets like Bitcoin are losing favor among investors.
Tariff-Driven Inflation Casts a Shadow
The Biden administration’s tariff policies are fueling market concerns. Although some tariffs were temporarily lifted, investors anticipate higher inflation in the months ahead. The U.S. Consumer Price Index (CPI) for March reported a 2.8% annual rise—the lowest since 2020—but this failed to ease investor fears.
Joe Brusuelas, chief economist at RSM, called the CPI figure the “final clear snapshot” before tariff-related price pressures take hold. “Markets are preparing for cost increases as supply chains adapt to new trade restrictions,” he told Yahoo Finance.
With inflation concerns mounting, weaker demand for corporate debt, and stagflation risks looming, institutional investors are retreating from Bitcoin ETFs, even as prices climb.
Bitcoin ETFs Struggle to Regain Trust
Despite Bitcoin trading near all-time highs, ETF investors remain hesitant. The persistent outflows suggest that many still view Bitcoin as a high-risk asset rather than a dependable hedge against inflation or a store of value.
To regain traction, Bitcoin must reinforce its reputation as a macro-hedge asset, leveraging its fixed supply, decentralized structure, and resistance to government control. However, changing investor perceptions will take time. Without stronger economic signals or shifts in market sentiment, Bitcoin ETFs may continue to see withdrawals in the short term.
For now, investors appear focused on safer assets like U.S. Treasuries and cash until credit markets stabilize and inflation becomes more predictable.
Disclaimer: This article is for informational purposes only and does not offer financial advice. Always conduct your own research or consult a licensed advisor before making investment decisions.
