Crypto markets are facing pressure from multiple fronts as the US elections, ambiguous macroeconomic data, and downbeat sentiment related to crypto exchange-traded funds (ETFs) outflows are weighing on prices, according to a recent report by Nansen.
Broad capitulation sentiment
US-traded spot Bitcoin (BTC) and Ethereum (ETH) ETFs have experienced negative flows for the second consecutive week. While Bitcoin ETFs bled by over $983 million in the past two weeks, Ethereum ETFs lost $103.5 million in the period, according to Farside Investors’ data.
This coincided with a net decrease in total stablecoin supply from Aug. 26 to Sept. 7, as roughly $450 million left the market. According to the report, this rare occurrence in 2024 may signal investor capitulation, unlike previous sell-offs in March and August.
Additionally, institutional interest in Ethereum-based products has waned, with VanEck closing its Ethereum Strategy ETF after less than a year and WisdomTree withdrawing its application for a spot Ethereum ETF with the U.S. Securities and Exchange Commission (SEC).
As a result, Nansen’s risk management indicators show negative BTC price momentum, while the BTC call-put spread is barely risk-on, suggesting a neutral market stance.
Additionally, Bitcoin is testing its 50-week moving average, while Ethereum challenges its 200-week moving average, both critical support levels.
Elections and uncertainty
The US presidential election is expected to create uncertainty for risk assets, such as crypto, until November. Markets may be underestimating the impact of a potential “Democratic sweep,” which could lead to increases in corporate and capital gains tax rates.
Yet, it could all boil down to today’s debate bringing a small breather to crypto prices, Harris’ lead in the polls could be impacted by a bad performance.
Macroeconomic data shows weakness in manufacturing activity across the Eurozone, China, and the US, as well as a cooling US labor market.
While services and consumer spending remain stable, dwindling savings among less affluent households may impact future consumption.
This paints an ambiguous picture where it is difficult to point out if the global economy is shifting to a slower pace of growth, or if it is slowly sliding into a recession. Furthermore, the Federal Reserve’s projected rate cuts, with markets pricing in 225 basis points reductions by 2026, may not be sufficient to stimulate growth in all sectors.
The disconnect between asset price expectations and the ongoing growth slowdown poses risks for investors, particularly in highly valued stocks. Thus, this uncertainty also subsides the appetite for risk in the market.