As the global economy faces rising uncertainty, institutional investors are flocking to the bond market in search of stability, leaving Bitcoin ETFs behind with record outflows of over $800 million.
Bitcoin ETFs Experience Record Outflows Amid Tariff Volatility
The U.S.-listed spot ‘Bitcoin’ Exchange-Traded Funds (ETFs) have seen significant outflows in April, with the funds bleeding over $800 million from institutions. This trend is a stark contrast to social media calls to buy bitcoin, which often tout the asset as a safe haven during economic uncertainty.
The Shift Away from Cryptocurrency
Despite the popularity of buying ‘Bitcoin’ on social media, institutions have not followed suit. In fact, they have opted for more traditional investments like U.S. Treasury bills, which continue to attract strong demand. This shift is largely due to the rising uncertainty in the global economy, including increased recession odds and trade tensions.
Institutional investors are large organizations that pool funds from various sources to invest in securities, real estate, and other assets.
They include pension funds, mutual funds, insurance companies, and sovereign wealth funds.
These investors play a significant role in global financial markets, accounting for over 70% of the world's invested capital.
Institutional investors have strict investment criteria and guidelines, which they follow to generate returns on their investments.
Their investments can significantly impact stock prices, market trends, and economic growth.
Economic Uncertainty and Market Volatility
The uncertainty surrounding the global economy has led to a rise in market volatility. Corporate earnings guidance has become increasingly uncertain, with BofA‘s 3-month guidance ratio falling to its weakest level since April 2020. This has resulted in risk assets being affected, making it challenging for investors to make informed decisions.
Market volatility refers to the fluctuations in stock prices, exchange rates, and other financial assets over a specific period.
It is influenced by various factors such as economic conditions, political events, and market sentiment.
Historical data shows that market volatility can be unpredictable, with some periods experiencing high levels of volatility while others remain relatively stable.
According to a study by the Chicago Mercantile Exchange, the average annual return on investment for stocks is around 10%, but this figure can drop to -20% or more during times of high market volatility.
The Role of U.S. Treasury Bills
U.S. Treasury bills have emerged as a safe haven during this period of economic uncertainty. They are highly liquid and considered low-risk, making them the preferred choice for collateral in the repo market. Institutions typically park money in T-bills when they need flexibility in their investments rather than committing to long-term positions.
Increased Recessions Odds
The increased recession odds have further complicated matters for risk assets. Elevated Japanese bond yields have also added to the uncertainty, making it challenging for investors to predict market movements.
Recession odds refer to the likelihood of a country or economy entering a recession.
A recession is typically defined as a decline in gross domestic product (GDP) for two or more consecutive quarters.
According to data from the National Bureau of Economic Research, the US has experienced 11 recessions since World War II.
The average duration of a recession is approximately 10-15 months.
Key indicators such as GDP growth rate, unemployment rate, and inflation rate are often used to assess recession odds.
Conclusion
The trend of institutions opting for U.S. Treasury bills over Bitcoin ETFs is a clear indication that they are prioritizing stability and low-risk investments during periods of economic uncertainty. While social media calls to buy ‘bitcoin’ may be popular, institutions are not following suit, instead choosing more traditional investments that offer flexibility and security.
