The cryptocurrency market has remained locked in a prolonged downturn, one that many participants now openly describe as a bear market. That label appears increasingly difficult to dispute.
After a brutal 35% drawdown, the market has erased more than $1 trillion in value, marking one of its steepest periods of capitulation in recent cycles.
Market liquidity has also continued to thin. What makes the current environment particularly striking is the growing divergence between asset classes. As liquidity dries up, precious metals have staged an aggressive rally, with gold and silver delivering sustained upside while digital assets slide further into weakness.
This widening gap underscores a broader shift in investor behavior. As traditional investors step away from crypto exposure, precious metals are tightening their grip as the market’s preferred refuge.
Traditional investors exit from crypto ETFs
Traditional investors have continued to unwind positions across major digital assets, including Bitcoin [BTC], Ethereum [ETH], Solana [SOL], and XRP, through U.S. spot ETFs.
Bitcoin ETFs have borne the brunt of the sell-off. More than $1.33 billion has exited the market, pushing outflows to levels last seen in November, when selling momentum intensified sharply.
Ethereum ETFs have followed a similar trajectory, recording net withdrawals of $611 million, comparable to the sell-off observed in mid-December.
Source: Sosovalue
XRP’s U.S. spot ETF recorded its first negative weekly netflow, with $40.6 million pulled from the market.
This marked a sharp reversal from the previous week, when inflows surged to $56.83 million, the strongest reading in January. Solana stood as the lone exception, managing to retain positive weekly inflows. Even so, the $9.57 million added represented its weakest inflow on record.
The steady drumbeat of outflows points to a clear shift in sentiment. For many institutional players, digital assets no longer offer the risk-reward profile they once did.
Instead, capital appears to be gravitating toward assets that promise stability and are currently delivering it.
Precious metals absorb capital flight
Precious metals have extended their rally, led decisively by gold and silver. Together, they now rank among the world’s most valuable asset classes, boasting market capitalizations of $34.64 trillion and $5.81 trillion, respectively.
Since the broader crypto market slipped into decline in October, silver has surged to fresh highs, while digital assets continue to probe lower levels.
Over this same period, silver has added value roughly equivalent to Bitcoin’s entire market capitalization. Gold and platinum have also posted strong, sustained gains.
This renewed appetite for precious metals has been fueled by rising geopolitical tensions, particularly involving the United States and several European nations, which have amplified risk aversion across global markets.
Concerns over the weakening purchasing power of the U.S. dollar have further accelerated the shift. In times of uncertainty, investors have once again turned to precious metals as reliable safe havens.
For digital assets—often categorized as risk-on investments, the implications are stark. Capital inflows remain constrained as investors prioritize capital preservation and more predictable returns, a framework that currently favors precious metals.
Any path to recovery?
The outlook for a near-term recovery in the crypto market remains uncertain. Geopolitical risk has already nudged investors toward safety, but a deeper challenge lies in the evolving dynamics of global liquidity.
Global liquidity has continued to expand, reaching a record $162 trillion. Historically, such expansion has acted as a tailwind for crypto markets, with higher liquidity closely aligned with rising digital asset prices.
Global liquidity reflects the total pool of money and credit circulating through the world’s financial system. Under normal conditions, this would be a supportive backdrop for crypto.
Source: TradingView
Yet since November 15, a striking decoupling has emerged. While the global liquidity index continues to climb, the crypto market has trended lower. This divergence suggests that capital is flowing elsewhere, disrupting the rotation patterns that once favored digital assets.
Still, some market participants remain cautiously optimistic.
A more supportive macro backdrop could emerge with the appointment of a new Federal Reserve chair, whose policy stance may prove more accommodating to risk assets, including cryptocurrencies, over the longer term.
Final Thoughts
- Capital outflows and weakening funding conditions have now been recorded across all four major U.S. spot cryptocurrency exchange-traded funds, highlighting a clear pullback in institutional conviction.
- Precious metals continue to shine. Silver has emerged as the standout performer, notching the strongest gains as the crypto market remains trapped under persistent selling pressure.
