Citi Says Crypto’s Weakness Stems From Slowing ETF Flows and Fading Risk Appetite
Citi analysts report that recent Bitcoin market weakness occurs despite strong equity performance, with October sell-offs reducing risk appetite across leveraged crypto traders and new spot ETF investors. Declining U.S. Bitcoin ETF inflows and reduced long-term holder participation raise concerns. Technical indicators like Bitcoin's drop below the 200-day SMA and reduced bank liquidity compound the challenges. Onchain data highlights declining large Bitcoin wallets and softening demand for leverage. Analysts emphasize monitoring ETF flows as a critical indicator of market sentiment for any recovery in the broader crypto market.
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Crypto Market Weakness Despite Equity Gains
Wall Street bank Citi (C) noted that the recent crypto market downturn contrasts sharply with buoyant equity performance. October's sharp liquidations have significantly impacted investor confidence, according to analysts Alex Saunders and Nathaniel Rupert in their Tuesday report. The Oct. 10 sell-off has curtailed risk-taking, not only among leveraged crypto traders but also among newer spot ETF investors, leading to their subsequent pullback.
Slowdown in U.S. Spot Bitcoin ETF Inflows
The analysts observed that flows into U.S. spot Bitcoin ETFs have slowed significantly in recent weeks, undermining what they termed a 'critical pillar of support' for positive market sentiment. The bank's forecast assumes steady ETF inflows as financial advisors and other investors gradually increase their Bitcoin exposure. However, with that momentum now stalling, sentiment could remain soft.
On-Chain Data Signals Investor Shift
The report highlighted on-chain data as a further indication of caution. Large Bitcoin holders are declining in number, while smaller retail wallets are rising, suggesting that some long-term investors may be selling their positions. Additionally, declining funding rates further indicate waning demand for leverage in the market.
Technical Indicators Show Weakening Outlook
From a technical perspective, the outlook for Bitcoin remains weak. The cryptocurrency has slipped below its 200-day moving average (SMA), a critical level that Citi says could further dampen demand, given the market’s reliance on such indicators. Furthermore, Bitcoin's weakness has been attributed to tightening bank liquidity, as reserves are drained and short-term rates remain elevated.
Spot ETF Flows as a Key Market Signal
Despite the industry's early stage in its broader adoption cycle, the report concluded that spot ETF flows remain the key signal to monitor for a potential recovery in crypto sentiment. Analysts emphasize this metric as a critical barometer for gauging any possible turn in market confidence and trends.
Increased Correlation Between Crypto and Stocks
The report also touched on the tightening correlation between cryptocurrencies and traditional stock markets as volatility returns. Citi's analysis underlines that Bitcoin's price movements are increasingly tied to broader financial market dynamics, reinforcing the challenges for investors aiming to navigate this evolving landscape.