Crypto Investment Products See $1.9B Inflows After Fed Rate Cut

Cryptocurrency investment products brought in $1.913 billion in inflows last week. The surge came right after the Federal Reserve cut interest rates for the first time this year. 

Total assets under management (AUM) for digital assets climbed to $40.4 billion, close to last year’s $48.6 billion peak.

CoinShares reported Monday that this was the second straight week of heavy buying. The week before saw $3.3 billion in inflows, the largest weekly total of the year.

“Digital asset investment products saw $1.9 billion of inflows last week, marking a positive response to the ‘hawkish cut’ by the FED last week,” James Butterfill, head of research at CoinShares, wrote in the report.

Bitcoin led the way with $977 million in inflows. However, that was down from $2.4 billion the week before. Ethereum followed with $772 million, its best week this year, up from $645 million previously. Solana and XRP also posted strong numbers with $127.3 million and $69.4 million, respectively.

Butterfill noted that investors did not jump in immediately after the rate cut. “Although investors initially reacted cautiously to the so-called hawkish cut, inflows resumed later in the week, with $746 million entering on Thursday and Friday as markets began to digest the implications for digital assets,” he said.

The inflows mostly came from the United States, Switzerland, and Brazil. Hong Kong saw small outflows, but the overall sentiment stayed positive. Analysts said the demand showed how crypto continues to serve as both a hedge against economic uncertainty and a way to diversify portfolios.

The Federal Reserve’s decision, announced last Wednesday, cut the key U.S. interest rate by 0.25 percentage points. Fed Chair, Jerome Powell, called it a risk management step designed to support growth while keeping an eye on inflation.

After the announcement, the U.S. dollar weakened while stocks and Bitcoin rallied. Many traders believed the rate cut would boost market liquidity, which tends to benefit risk assets like crypto.

Butterfill said, “After months of speculation, the US Federal Reserve cut interest rates last week. Although investors initially reacted cautiously to the so-called ‘hawkish cut,’ inflows resumed later in the week.”

Short-Bitcoin products saw the opposite trend, recording $3.5 billion in outflows as total assets under management for those funds fell to a multi-year low of $83 million. Ethereum funds, on the other hand, drew strong demand, pushing year-to-date totals to a record $12.6 billion, according to CoinShares data.

Meanwhile, spot Bitcoin prices climbed above $117,000 on Thursday before falling early this week. Ethereum briefly rose above $4,600 but then slipped below $4,300.

The Crypto Fear & Greed Index, which measures market sentiment, stayed neutral at 53 last week. But on Monday, the index moved into “Fear” territory at 45, signaling renewed caution among investors.

October Optimism Meets Market Caution

Traders are now looking to October, a month known for strong crypto rallies. Bitcoin has closed in the green nearly every October since 2013, often with big gains. It jumped 48% in October 2017 and 40% in October 2021.

At current levels near $112,500, even a modest October rally could push Bitcoin toward $165,000 before November. Futures markets are betting on another Federal Reserve rate cut next month, with the probability above 90%.

Arthur Hayes, co-founder of BitMEX, believes conditions are lining up for a bullish October. “The U.S. Treasury has nearly finished its recent round of cash hoarding,” he said. Once that pressure eases, Hayes thinks crypto could flip into “up only” mode.

But not everyone is convinced. Analysts at SignalPlus say low volatility and slower inflows could limit the size of any rally. Jeff Mei, chief operating officer at BTSE, noted that September’s price decline was mild compared to previous years.

“September’s market slide has been unusually mild,” Mei said. “That makes the odds of a classic Uptober surge less convincing unless Washington takes more aggressive steps to stimulate the economy.”

Bitcoin fell to $114,000 on Monday, its lowest point in nearly two weeks, wiping out $80 billion in crypto market value. Ethereum also dropped 4% below $4,300.

Whether October delivers another rally will depend on how investors respond to economic signals and policy changes. Multiple Federal Reserve officials, including Jerome Powell and Stephen Miran, are set to speak this week. Their comments could shape expectations for more rate cuts or other moves to support the economy.

For now, traders are watching whether new liquidity from lower interest rates will outweigh ongoing concerns about growth and inflation.

Altcoin Rotation Slows as Investors Turn Cautious

While Bitcoin and Ethereum dominated last week’s inflows, data shows that the recent rush into altcoins is fading. Earlier in September, traders moved into altcoins like Solana, XRP, and other mid-cap tokens, hoping for bigger returns than Bitcoin could offer. That trend helped push up altcoin trading volumes while Bitcoin’s dominance fell.

But according to on-chain analytics firm CryptoQuant, that rotation now appears to be ending. The altcoin season index, which tracks whether altcoins are beating Bitcoin in performance, dropped from 88 earlier this month to 65.

Ethereum, which led much of the September rally, has fallen more than 6% to below $4,200. Large holders, often called whales, have also reduced risk exposure. One whale sold $72.88 million worth of Ethereum just before prices began to fall.

At the same time, over 420,000 ETH moved off exchanges last week. Analysts say that shows traders are securing profits rather than keeping funds on trading platforms where they can be quickly sold.

Back in June, many analysts worried about a big correction, but Ethereum withdrawal data stayed steady then, suggesting stability. Now, the situation looks different as capital leaves riskier altcoins at a faster pace.

As the fourth quarter begins, both retail traders and institutions appear to be playing it safe. Even Bitcoin has struggled to reach earlier highs, showing investors are cautious despite two straight weeks of inflows.

Analysts agree that any major rally likely depends on further rate cuts from the Federal Reserve and signs of economic improvement. Until then, the market seems to be shifting toward safety over aggressive risk-taking.