The crypto industry is known for its sheer price movement volatility, driven mainly by events and liquidity crunches. Since the beginning of the year, there has been a noticeable and consistent outflow of cash from the cryptocurrency market, which is unsurprising.
According to Bitfinex’s latest report, this capital drain was evident in August, as the crypto market saw an exit of about $55 billion in capital from major cryptocurrencies.
$55 Billion Drained In The Past Month
Bitfinex’s analysis, which measured the aggregate realized value metric of Bitcoin (BTC), Ethereum (ETH), and major stablecoins like Tether’s USDT, USD Coin (USDC), BUSD, Dai, and TrueUSD (TUSD), indicates that about $55 billion in capital exited the market in August.
Although the market struggled for most of the first half of the year, things became different in July as Bitcoin spearheaded inflows. During this period, Bitcoin crossed $30,000 for a while as over $100 billion has entered the market. However, the momentum changed in early August, as profit-taking and continued mixed signals from the US economy triggered outflows.
“A deep dive into the data reveals a prevailing trend: by early August, the industry had begun to experience capital outflows,” said the report.
Interest from institutional investors during this period, especially, started to wane as digital asset investment funds registered outflows after four weeks of heavy inflows. The trend has continued to the time of writing, as the run of outflows now totals $294 million.
What Caused The Crypto Capital Drain?
The report from Bitfinex shows that August’s capital drain was the biggest this year, especially for Bitcoin. Most of this drain came from two isolated events, resulting in immense price movement in a relatively short period. In particular, the August 17 flash crash saw Bitcoin’s price drop by 11.4% in a few hours.
“August was the largest red monthly candle for BTC since the bear market bottom was formed in November 2022 at –11.29 percent as per Bitfinex Data.”
The crypto derivative market has also had a similar trajectory. Ether (ETH) futures and options markets have slowed considerably in 2023. The average daily trading volume is down almost 50% from the two-year average to $14.3 billion daily.
Bitcoin has also seen some liquidity crunches, as data shows almost 69% of all mined Bitcoin have not moved in over a year. On the other hand, this suggests a…