Crypto Breaks Outflows Streak on U.S. Government Shutdown Fears

• Crypto funds have broken a six-week-long outflow streak.
• The shift in sentiment followed fears of a U.S. government shutdown and rising debt.
• These fears have failed to materialize for now.

Over the past several weeks, crypto investment funds recorded outflows as investor sentiment remained largely negative. However, this tide turned last week, albeit due to unrealized fears of a U.S. government shutdown.

Crypto Funds Break Outflows Streak

Last week, crypto investment funds broke a six-week-long outflow streak by recording net inflows of $21 million, according to CoinShares’ crypto fund flows report released on Monday, October 2.

Bitcoin funds saw the majority of inflows, with $20 million, representing a significant shift in sentiment from the previous week, where they recorded $6 million in outflows. 

While altcoin funds saw minimal activity, Solana continued its run as the “most loved altcoin” by investors in 2023, as related funds witnessed $5 million in inflows. Last week’s flows represented the 27th week of inflows for Solana in 2023, with only four weeks of outflows so far.

CoinShares Head of Research James Butterfill suggested that the recent shift in sentiment came amid fears that the U.S. government was set to shut down over the weekend as most inflows came on Friday. 

"Earlier in the week it looked as if it would be another week of outflows, with the inflows coming late in the week (Friday) in what we believe is a reaction to a combination of positive price momentum, fears over US government debt prices and the recent quagmire over government funding," Butterfill wrote.

Unrealized Fears

Many feared that the U.S. government would shut down on Sunday, October 1, as lawmakers failed to reach an agreement on the federal budget for the next fiscal year even as the current one inched to a close over the weekend. 

Despite these fears, lawmakers passed a temporary funding bill on Saturday, September 30, to keep the government running till mid-November or another 45 days in hopes of reaching a detailed budget agreement for the next fiscal year during this time.

The recent debates over government spending have also brought the U.S.’s rising debt into focus. The U.S. hit its debt ceiling of $31.4 trillion in January 2023, with lawmakers forced to pass a bill in June 2023 to suspend the debt ceiling till 2025, narrowly escaping a default.

On the Flipside

• With a U.S. government shutdown temporarily averted, it is unclear whether crypto funds will be able to continue with net inflows this week.
• Ethereum recorded outflows for a seventh consecutive week with $1.5 million.

Why This Matters

Crypto fund flows provide a broad picture of investor sentiment. Last week’s flows suggest investors are again optimistic about the crypto markets after a long period of skepticism.

Read this to learn more about last week’s crypto fund flows:

Crypto Outflows Tank 83% as European and U.S. Sentiments Diverge

Find out where analysts think Bitcoin is going next after its recent surge above $28k:

Bitcoin Uptober Excitement Peaks With $28K Surge: What’s Next?