Investor sentiment toward digital assets has taken a decisive turn lower, with crypto funds recording $1.7 billion in weekly outflows last week.
It marks a second consecutive week of withdrawals and reversing year-to-date inflows into a net $1 billion outflow.
Investors Turn Defensive as Short Bitcoin and Tokenized Metals Attract Capital
After $1.73 billion outflows from crypto funds the week ending January 23, digital asset investment products lost $1.69 billion last week. The latest pullback has also accelerated a broader contraction in assets under management (AuM).
Since peaking in October 2025, total AuM across digital asset products has fallen by $73 billion. This reflects both sustained price weakness and persistent capital flight from the sector.
CoinShares analyst James Butterfill points to a combination of factors behind the downturn. The head of research cites:
- The appointment of a more hawkish US Federal Reserve Chair
- Ongoing whale selling is tied to the four-year crypto cycle and
- Heightened geopolitical volatility has pushed investors toward safer assets.
It explains why outflows were overwhelmingly concentrated in the US, which accounted for $1.65 billion of the total weekly withdrawals.
“We believe this reflects a combination of factors, including the appointment of a more hawkish US Federal Reserve Chair, continued whale selling associated with the four-year cycle, and heightened geopolitical volatility,” wrote Butterfill.
The scale of the US exodus highlights the sensitivity of crypto markets to shifts in Federal Reserve expectations and broader financial conditions. Elsewhere, sentiment was similarly negative, albeit on a smaller scale.
Broad-Based Outflows Highlight Defensive Shift in Crypto Markets
Across individual assets, the sell-off was broad-based. Bitcoin bore the brunt of the withdrawals. It shed $1.32 billion over the week as investors reduced exposure to the pioneer crypto, potentially explaining the BTC price slump.
Ethereum followed with $308 million in outflows, reflecting waning confidence even in assets typically viewed as long-term structural bets.
In the same way, recent market favorites were not spared as XRP and Solana recorded outflows of $43.7 million and $31.7 million, respectively.
The above chart signals a rotation away from higher-beta positions. Yet amid the gloom, pockets of defensive positioning emerged. Short Bitcoin investment products attracted $14.5 million in inflows, pushing year-to-date AuM up 8.1%.
The move suggests traders are increasingly hedging against further downside rather than positioning for a near-term rebound.
At the same time, so-called Hype investment products stood out as a rare bright spot, drawing $15.5 million in inflows. These products benefited from a surge of on-chain activity linked to tokenized precious metals, which appear to be gaining traction as an alternative store-of-value narrative amid crypto market stress.
Taken together, the latest flow data points to a market in defensive mode. With capital continuing to exit core assets and only niche segments attracting inflows, investor behavior suggests caution is firmly in control.
Whether sentiment stabilizes will likely depend on key US economic events this week, a slowdown in large-holder selling, and a reduction in geopolitical risks. These factors remain uncertain in the near term.
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