In a notable shift within the investment landscape, US spot Bitcoin and Ethereum exchange-traded funds (ETFs) are experiencing significant outflows as investors reallocate funds toward international equities. This trend has unfolded amid rising Treasury yields and a strong US labor market, which together suggest a more favorable environment for global stock investments outside the US.
As of 2026, the US spot Bitcoin ETFs have seen a dramatic decrease in total assets, dropping from a peak of approximately $115 billion to around $83 billion. Ethereum ETFs have faced an even steeper decline, with assets dwindling from about $18 billion to nearly $11 billion. This trend indicates that capital is actively leaving the cryptocurrency sector rather than simply fluctuating within it.
The context for this shift is marked by record inflows into international equity ETFs, particularly those focused on global markets excluding the US. In January, these funds absorbed about one-third of total ETF inflows, despite representing a much smaller fraction of total assets. This underscores a significant rotation as investors pivot to cheaper overseas markets, drawn by improving macroeconomic conditions abroad.
The current environment has seen at least 115 stocks in the S&P 500 drop by 7% or more within an eight-session timeframe. Remarkably, despite this volatility, the S&P 500 index itself is only down about 2% from its all-time high. Historically, such pronounced declines in stock prices have led to broader market corrections, yet the S&P appears resilient, indicating a complex interplay within the broader market dynamics.
Institutional investors are reportedly trimming their exposure to crowded US growth trades, including cryptocurrencies, as they shift capital into international markets. As stronger US employment data pushes Treasury yields higher, the tightening of financial conditions enhances the appeal of bonds relative to riskier assets like Bitcoin and Ethereum. These cryptocurrencies, often viewed as high-beta plays, typically experience pressure when investors opt for safer or yield-generating investments.
The evolutionary role of crypto ETFs, which in 2024 acted as a significant source of demand and helped drive upward price movements, has taken a turn. Currently, these ETFs are functioning more as distribution channels, rather than amplifying market rallies. This shift does not undermine the overarching long-term thesis surrounding cryptocurrencies but does introduce risks to short-term liquidity in the crypto market.
As this capital rotation appears poised to continue, the potential for ongoing ETF outflows poses challenges for Bitcoin, Ethereum, and the broader cryptocurrency ecosystem. Investors will need to monitor macro conditions closely, as any easing may influence the trajectory of these assets moving forward.
