Spot Bitcoin exchange-traded funds (ETFs) are grappling with substantial capital withdrawals as global trade disputes and recession fears intensify. Between March 28 and April 8, Farside Investors data shows that $595 million flowed out of Bitcoin ETFs. Following the U.S. government’s decision to suspend most import tariffs on April 9, an additional $127 million left these funds, pushing total net outflows to a striking $772 million.
Remarkably, Bitcoin’s price soared to $82,000 on April 9, its highest in recent weeks. Yet, this upward movement failed to spark confidence among institutional investors and ETF holders, raising doubts about the market’s underlying sentiment.
Investors Pull Back from Bitcoin ETFs Despite Price Surge
Ordinarily, Bitcoin’s price rallies attract fresh capital into spot ETFs. However, this time, broader economic anxieties appear to overshadow the cryptocurrency’s gains. Investors are adopting a cautious stance, favoring stable assets over high-risk options like Bitcoin.
Fears of tariff-driven inflation, contracting credit availability, and a slowing economy are curbing enthusiasm for volatile investments. Consequently, money is shifting toward traditional safe havens such as cash and government bonds.
Credit Markets Tighten, Driving Risk Aversion
Michael Weidner, co-head of global fixed income at Lazard Asset Management, flagged declining credit market conditions as a major warning sign. Speaking to Reuters, he noted that liquidity in credit markets has dwindled significantly, prompting investors to reduce holdings in risky assets and increase positions in cash and government securities.
Weidner warned that a credit squeeze could dampen business investments and consumer spending, regardless of stable U.S. Treasury yields. Lenders, perceiving heightened risks, are growing hesitant to extend loans, limiting capital access for businesses and households.
Ross Mayfield, an investment strategy analyst at RW Baird, expressed parallel concerns. He suggested that even Federal Reserve rate cuts might offer only fleeting relief. “In a stagflationary climate fueled by trade tariffs, corporate borrowers—both high-yield and investment-grade—will face steeper borrowing costs,” Mayfield stated.
Corporate Bond Spreads Reflect Growing Unease
Dan Krieter, director of fixed income strategy at BMO Capital Markets, highlighted a significant trend: corporate bond spreads recently recorded their sharpest weekly widening since the March 2023 banking crisis. This spread, the gap between corporate and government bond yields, signals investor risk appetite. A larger spread indicates that investors seek higher returns for holding riskier corporate debt.
This development points to increasing wariness about sustained inflation and economic strain, which could heighten corporate default risks. As a result, speculative assets like Bitcoin are losing ground.
Tariff Policies Fuel Inflation Worries
The Biden administration’s tariff moves are stirring unease in financial markets. While some tariffs were temporarily halted, investors expect price pressures to rise in the coming months. March’s U.S. Consumer Price Index (CPI) reported a 2.8% annual increase—the lowest since 2020—but failed to bolster investor optimism.
Joe Brusuelas, chief economist at RSM, described the CPI as the “last untainted measure” before tariff-induced inflation takes effect. “Markets are gearing up for higher costs as supply chains navigate renewed trade barriers,” he told Yahoo Finance.
With inflation fears escalating, corporate debt demand weakening, and stagflation risks growing, institutional investors are stepping back from Bitcoin ETFs despite favorable price trends.
Bitcoin ETFs Face a Confidence Challenge
Even as Bitcoin hovers near record highs, ETF investors remain skeptical. The ongoing withdrawals signal that many still see Bitcoin as a volatile risk asset rather than a trusted inflation hedge or store of value.
To regain momentum, Bitcoin must solidify its role as a macro-hedge asset, capitalizing on its fixed supply, decentralized nature, and independence from government influence. However, shifting investor mindsets will require time. Without clearer economic drivers or changes in market outlook, Bitcoin ETFs may face continued outflows in the near future.
Until credit markets stabilize and inflation expectations clarify, investors are likely to favor safer options like U.S. Treasuries and cash.
Disclaimer: This article provides information only and is not financial advice. Always perform your own research or consult a licensed advisor before investing.