The Federal Reserve (FED) hawkish stance triggers an exodus of 360 million! Solana ETF attracts 400 million in funds against the trend.

Last week, due to investors reacting to The Federal Reserve (FED) Chairman Powell's cautious remarks about future rate cuts, Crypto Assets investment products saw an outflow of $360 million. The US market experienced an outflow of $439 million, with Bitcoin ETF leading the decline, with redemptions reaching $946 million. However, the Solana ETF performed outstandingly, attracting an inflow of $421 million, setting a historical second-high record.

Powell's hawkish remarks trigger $360 million capital outflow

(Source: CoinShares)

The cautious remarks made by Federal Reserve Chairman Powell became the direct trigger for the outflow of funds from the crypto market last week. Although the Federal Reserve lowered interest rates by 25 basis points on Wednesday as the market expected, Powell's statements at the press conference were unexpectedly hawkish. He clearly pointed out that another rate cut in December “is not a done deal,” which contrasts with the market's previous optimistic expectations for a consecutive rate-cutting cycle.

This policy uncertainty has a direct impact on risk assets, especially on crypto assets. Investors originally expected the Federal Reserve (FED) to continue cutting interest rates in the coming months, injecting ample liquidity into the market. However, Powell's remarks suggest that the pace of rate cuts may slow or pause, prompting funds to withdraw from high-risk assets and shift towards defensive positions. The ongoing government shutdown has led to a lack of economic data, further exacerbating market uncertainty, as investors are unable to accurately assess the economic situation and the Federal Reserve's (FED) next move.

Most of the selling pressure comes from the U.S. market, which saw a capital outflow of $439 million, partially offset by a small inflow of funds from Germany and Switzerland. The dominant capital outflow in the U.S. market indicates that local investors have the most serious concerns about the policy environment. Bitcoin ETF leads the decline, with redemptions reaching $946 million, marking one of the largest weekly capital outflows since the launch of the Bitcoin ETF.

The massive redemptions of Bitcoin ETFs reflect the cautious attitude of institutional investors. These professional investors are usually highly sensitive to changes in macroeconomic policies, and Powell's hawkish shift has prompted them to quickly adjust their positions. In contrast, retail investors may respond more slowly, but the leading exit of institutions often signals that the market is about to enter a correction phase.

Solana ETF counter-trend surged to 421 million, setting a new record high

Despite Bitcoin funds being the first to suffer capital outflows, not all assets have followed suit. The Solana ETF has performed outstandingly, attracting $421 million in inflows, setting the second-highest record in history, primarily due to market demand for the newly launched U.S. ETFs. This has also brought Solana's total inflows to $3.3 billion so far this year.

This kind of counter-trend performance is extremely rare. Against the backdrop of a capital outflow of $360 million from the overall market, the Solana ETF was able to attract $421 million in inflows, indicating that funds are undergoing a structural shift. Investors are not completely leaving the crypto market but are shifting from mature assets like Bitcoin to alternative coins with high growth potential like Solana. This “capital rotation” phenomenon often occurs in the mid-stage of a bull market.

Bitwise's brand new Solana Staking ETF (BSOL) debuted last Tuesday, with seed assets reaching $222.8 million, indicating strong demand from agents for Solana staking products. BSOL provides investors with the opportunity to invest directly in Solana, with an expected annual yield of 7% from on-chain staking rewards. This yield is particularly attractive in the current interest rate environment, especially considering that traditional fixed income products generally yield between 4-5%.

As of Friday, the spot Solana ETF recorded inflows for the fourth consecutive day, increasing by $44.48 million. This sustained inflow pattern indicates that the demand for the Solana ETF is not just a flash in the pan, but rather has ongoing institutional interest. The consecutive four days of positive inflows are a clear signal of strong demand in the ETF space, as it shows that buying interest is coming not only from initial excitement but also from continued allocation demand.

Solana ETF Key Data on Fund Inflows

Weekly Inflow: 421 million USD (historically the second highest)

Total Inflow This Year: 3.3 Billion USD

BSOL Seed Scale: 222.8 million USD

Consecutive Inflow Days: 4 days (increased by 44.48 million USD on Friday)

Staking Annual Yield: 7%

Kronos Research Chief Investment Officer Vincent Liu told Cointelegraph that this trend reflects a growing interest in staking rewards and a continued “capital rotation” as traders are profiting from the recent Bitcoin and Ethereum rallies. This rotation logic is extremely important: when Bitcoin is fluctuating above $100,000, some investors choose to take profits and shift their funds towards Solana, which is relatively undervalued and has greater upside potential.

The Mystery of Weak Ethereum Inflows and the Counter-Trend Fall of SOL Prices

Ethereum also received an inflow of $57.6 million, but daily trading activity shows mixed investor sentiment. Compared to the $421 million inflow of the Solana ETF, Ethereum's $57.6 million seems insignificant. This gap reflects the market's different expectations for the two platforms: Solana is seen as a rising star with high growth potential, while Ethereum, although the leader in smart contract platforms, has seen its growth rate slow.

Despite the surge in capital inflows into the Solana ETF, according to data from CoinGecko, as of the time of writing, the trading price of SOL is approximately $166, having fallen over 9% in the past 24 hours and about 26% in the past 30 days. This divergence between capital inflows and price decline is worth further analysis.

One interpretation is that there is a time lag between ETF fund inflows and spot market prices. The buying demand for ETFs needs to be transmitted to the spot market through the Authorized Participants (AP) mechanism, which may take several days. In addition, ETF buying may be executed over-the-counter or in block trades, having limited immediate impact on public market prices.

Another explanation is that the selling pressure in the spot market temporarily exceeds the buying orders from the ETF. Project teams, early investors, or miners within the Solana ecosystem may choose to take profits when prices are relatively high, and this selling pressure offsets the buying effect of the ETF. However, in the medium to long term, the continued inflow of the ETF will gradually absorb the selling pressure and drive prices higher.

The third explanation involves overall market sentiment. In the context of the Federal Reserve's hawkish stance and macroeconomic uncertainty, even with ETF buying support, Solana's price struggles to stand out. However, relative to the larger falls of Bitcoin and Ethereum, Solana's performance has been relatively resilient.

Capital Rotation Logic and November Outlook

After a capital inflow of 921 million USD into crypto assets products last week, there was a capital outflow. The previous week, driven by the consumer price index (CPI) data announced on October 24 being lower than expected, crypto assets products received a capital inflow of 921 million USD. This “inflow-outflow-reinflow” fluctuation pattern is the norm in the crypto market, reflecting investors' high sensitivity to short-term data and events.

From a longer time dimension, the strong performance of the Solana ETF may indicate the beginning of a new round of capital rotation. Bitcoin, as the market leader, rises first and attracts institutional funds, followed by funds flowing to large alternative coins such as Ethereum, and eventually spreading to medium-sized projects like Solana and Cardano. This rotation pattern has repeatedly appeared in every bull market in history.

The market trend in November will depend on several key factors. First is the policy expectations from the Federal Reserve’s December meeting; if economic data shows that inflation continues to cool, expectations for interest rate cuts may rise again. Second is the cash flow of Bitcoin ETFs; if the redemption wave stops and turns into inflows, it will signify a recovery in market confidence. Third is the ongoing performance of Solana ETFs; if the continuous inflow trend is maintained, it may lead to a comprehensive rebound in alternative coins.