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Bitcoin ETF outflows show institutional investors pulling back from crypto as the Democratic sweep at the U.S. midterm elections leaves the industry-backed CLARITY Act facing steep resistance or gridlock. The policy setback is arriving alongside hotter-than-expected U.S. inflation data, so Bitcoin is contending with pressure from Washington and from Federal Reserve rate expectations at the same time. Bitcoin had already recorded five consecutive weeks of losses before the latest wave of selling, which has fully unwound its September rally. So what are the flows out of spot Bitcoin ETFs telling us about crypto demand once the legislative path stalls?
Fawad Razaqzada, StoneX Media Market Analyst, covers forex, indices, commodities and cryptocurrencies, along with the macroeconomic themes that move them. That coverage gives insight into what is driving Bitcoin, from U.S. inflation data and Federal Reserve rate expectations to crypto legislation and spot ETF flows.
The Democratic sweep at the U.S. midterm elections has severely dimmed the immediate prospects for the CLARITY Act, the industry-backed bill that aimed to classify or reclassify certain digital assets as commodities and reduce regulatory oversight. Specifically, the bill now faces steep resistance or the prospect of remaining gridlocked, rather than a clear route forward. That leaves the regulatory treatment of many digital assets unsettled, which matters most to institutional investors, whose demand shows up in products such as U.S. spot Bitcoin ETFs.
U.S. spot Bitcoin ETFs recorded around $1.28 billion in weekly outflows, while more than $1 billion in leveraged crypto positions were reportedly liquidated within 24 hours. Those flows hit a market already dealing with a less supportive macro backdrop, after a U.S. Consumer Price Index report in which both headline and core inflation came in above expectations. According to Razaqzada, the prospect of the Federal Reserve raising rates further and keeping them high for longer is "not particularly helpful for Bitcoin, gold and other zero-yielding assets, which tend to struggle when interest rate expectations rise.".
Bitcoin's institutional demand is most visible in the weekly flows into and out of U.S. spot Bitcoin ETFs, which show if large investors are adding or reducing exposure. Leveraged crypto liquidations show how much forced selling is amplifying moves when positioning unwinds. U.S. Consumer Price Index readings, both headline and core, shape Federal Reserve rate expectations and with them the opportunity cost of holding Bitcoin. On the chart, the 200-day moving average marks if Bitcoin's longer-term trend is holding or giving way.
--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Fawad Razaqzada, StoneX Media Market Analyst
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Outflows from U.S. spot Bitcoin ETFs show institutional demand reversing after the Democratic midterm sweep left the CLARITY Act facing gridlock. Hot U.S. inflation data adds a rates headwind, putting Bitcoin under pressure from Washington and the Federal Reserve together.
The U.S. midterm elections put Bitcoin's regulatory path on the line, and a Democratic sweep is not the only outcome that weighs on the cryptocurrency. A gridlocked Congress could stall the regulatory progress Bitcoin has enjoyed under the Trump administration.
Bank and crypto regulation rides on which party controls Congress after the U.S. midterm elections. A split between a Democratic House and a Republican Senate points to gridlock that keeps tighter rules on banks, crypto and tech stocks on hold.
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