Crypto Funds Bleed $1.7 Billion as Hawkish Fed Fears Trigger Market Retreat

Global cryptocurrency investment funds witnessed another week of significant capital flight, with outflows totaling $1.7 billion and pushing year-to-date flows into negative territory, according to the latest data from asset manager CoinShares. The report signals a sharp reversal in investor sentiment for a sector that had seen robust inflows earlier in the year.

The United States was the epicenter of the sell-off, accounting for a staggering $1.65 billion in redemptions. While Switzerland and Germany saw minor inflows, they were dwarfed by withdrawals in Canada and Sweden. The outflows were widespread across major assets. Bitcoin-focused products bled $1.32 billion, while Ethereum vehicles saw $308 million exit. Previously popular altcoins like XRP and Solana also turned negative. In a sign of bearish positioning, short-Bitcoin products attracted $14.5 million.

"This reflects a potent mix of macro fears and cyclical pressures," said James Butterfill, Head of Research at CoinShares. "The market is grappling with the implications of a potential hawkish turn at the Fed, ongoing selling from large holders, and elevated geopolitical uncertainty." Since the market peak in October 2025, total assets under management for these products have plummeted by $73 billion.

The fund exodus coincides with a steep price correction. Bitcoin is currently trading around $78,867, down nearly 10% over the past week and significantly below its January high. Ethereum has fared worse, shedding over 18% in the same period to trade near $2,370.

The catalyst for the latest volatility appears to be political. On Friday, President Donald Trump nominated former Fed Governor Kevin Warsh to chair the Federal Reserve, succeeding Jerome Powell. Warsh's past commentary on crypto has been critical; in a 2022 essay, he labeled many private projects "fraudulent" and argued cryptocurrency was "software, not money." Although he has recently adopted a more measured tone, his nomination has spooked investors accustomed to the Powell-era framework.

However, some analysts urge caution against overreaction. "Markets may be mispricing how hawkish a Warsh Fed would actually be," Thomas Perfumo, Global Economist at Kraken, told Decrypt. "His bias on interest rates remains dovish. The potential disappointment lies in his skepticism toward balance sheet expansion tools like quantitative easing. The nomination largely reinforces the status quo: rate cuts are likely to continue, but a major liquidity surge isn't expected."

Warsh's nomination has been further complicated by his name appearing in newly released documents related to the Jeffrey Epstein investigation, listing him and his wife as guests at a 2010 Caribbean party. While unrelated to monetary policy, the association adds a layer of scrutiny to his confirmation process.

Market Voices: A Split Reaction

Michael Chen, Portfolio Manager at Horizon Capital: "This is a healthy correction and a reality check. The market got ahead of itself pricing in perpetual liquidity. Warsh's nomination introduces uncertainty, but the core thesis for institutional crypto adoption remains intact. We're using this dip to accumulate quality assets."

Sarah Jennings, Independent Crypto Analyst: "The data is alarming. The sheer scale of U.S. outflows suggests institutional players are hitting the exits. This isn't just retail fear; it's a coordinated de-risking. If Warsh's past views translate into policy, it could stifle innovation and push crypto development overseas."

David Park, Retail Investor: "It's absolute panic and hypocrisy. The same Wall Street banks that are finally embracing Bitcoin ETFs are now fleeing because one guy might get a job? And now we find out this guy partied with Epstein? The whole system is corrupt. They want to control the money, and they see decentralized money as a threat. I'm not selling a single satoshi."

Eleanor Vance, Economics Professor at Carlton University: "The reaction is disproportionate but instructive. Crypto markets remain hypersensitive to U.S. monetary policy signals. Warsh's real impact won't be on rates—it will be on the Fed's openness to integrating digital assets into the financial architecture. His skepticism could mean a slower, more scrutinized path."