As the global trade war continues to cause uncertainty, Bitcoin BTCUSD spot exchange-traded funds (ETFs) are under significant strain. Farside Investors data reveals that from March 28 to April 8, these ETFs saw net outflows of $595 million. Notably, despite a temporary lift of most US import tariffs on April 9, an additional net outflow of $127 million was recorded. This has left traders puzzled over the continued outflows and why Bitcoin’s surge to $82,000 on April 9 didn’t bolster ETF investor confidence.
One possible explanation for the dwindling interest is the increasing prospect of an economic downturn. “You can clearly see that credit side liquidity has dried up,” said Michael Weidner, co-head of global fixed income at Lazard Asset Management. Essentially, investors are flocking towards safer assets such as government bonds and cash holdings, potentially leading to a credit squeeze.
A credit squeeze signifies a sudden drop in the availability of loans, resulting in decreased business investment and consumer spending. This can occur regardless of US Treasury yields, as an increase in perceived borrower risk can independently limit credit supply.
Ross Mayfield, a strategist at RW Baird, pointed out that even if the US Federal Reserve opts to lower interest rates to stabilize volatile markets, it might only offer companies temporary respite. Mayfield reportedly said: “In a tariff-induced stagflationary environment, both investment grade and high yield corporate borrowers could struggle as their debt costs increase.” Despite the 10-year US Treasury yield remaining steady compared to the previous month, investor desire for corporate debt is weak.
Dan Krieter, director of fixed income strategy at BMO Capital Markets, informed Reuters that corporate bond spreads have seen their largest one-week expansion since the regional banking crisis in March 2023. The spread between corporate bonds and government bonds represents the additional risk investors undertake when lending to companies.
Investors are anxious that even if the US Federal Reserve reduces interest rates, it might not be sufficient to restore economic confidence. This fear also explains why the US Consumer Price Index (CPI) for March— at 2.8%, the slowest annual rise in four years— didn’t positively influence stock markets. “This is the last clean print we’re going to see before we get those tariff-induced inflation increases,” Joe Brusuelas, RSM chief economist, told Yahoo Finance.
Investors seem to be awaiting stability in the corporate bond market before regaining confidence in Bitcoin ETF inflows. As long as the risk of recession remains high, investors will likely prefer safer assets such as government bonds and cash holdings. A change in the perception towards Bitcoin’s fixed monetary policy and censorship resistance would be required to break this correlation. However, triggers for such a change remain uncertain and could take months or even years.
This article is solely for informational purposes and should not be construed as legal or investment advice. The author’s views, thoughts, and opinions expressed herein do not necessarily represent those of Cointelegraph.
