Liquidity Dries Up: A Fragile Market Structure
July marked a turning point for Bitcoin, with the market entering a notably fragile state as liquidity evaporated. According to analytics from Arab Chain, Bitcoin’s available supply on exchanges dropped to historic lows, sharply limiting sell-side depth. Under normal circumstances, a liquidity squeeze could propel prices upward, but with a lack of fresh capital from new buyers, the market became exceptionally "thin." As a result, even modest sell-offs exerted disproportionate downward pressure on BTC, amplifying volatility.
Spot Bitcoin ETF Flows: From Surge to Retreat
The second critical factor was the instability of demand for US-listed spot Bitcoin ETFs. Analysts observed wild swings in net inflows and outflows throughout July, reflecting shifting sentiment among institutional investors. During periods of heavy redemptions, there was no alternative buy-side flow strong enough to absorb the sell pressure—leaving the market exposed. This lack of support from large players compounded downside risk and heightened intraday volatility.
The scale of these ETF outflows was stark: On August 4, BlackRock’s flagship IBIT fund saw $292.5M withdrawn—the single largest daily outflow in two months. This coincided with a sharp drop in BTC price, which slid 8.5% over the weekend to $112,300 before partially recovering to $115,000. The first day of August also ended IBIT’s 37-day streak of continuous inflows, highlighting the shifting tide.
Source: Farside Institutional Flows: Capital on the Move
For the third consecutive trading day, US spot bitcoin ETFs have reported net outflows. Fidelity’s FBTC shed approximately $40M, while Grayscale’s GBTC saw $10M leave the fund. Bitwise (BITB) was a rare exception, registering $18.7M in new inflows. Meanwhile, CoinShares data confirms that digital assets have become the fastest-growing segment of the alternative investment landscape, pulling in $60B YTD through July 22, just behind last year’s record $85B.
According to Bloomberg analyst Eric Balchunas, digital assets and hedge funds are actively capturing market share from private equity and credit this year—a sharp contrast to previous cycles. JPMorgan’s Nikolaos Panigirtzoglou also highlights this trend, noting that, “we’re seeing accelerated capital inflows into digital assets and hedge funds, in stark contrast with weaker flows in private capital and credit.” This migration of capital reflects evolving investor risk appetite and the growing legitimacy of crypto as an institutional asset class.
“Smart Money” Accumulation Stalls
Despite some large wallets continuing to accumulate BTC, the overall pace of “smart address” accumulation was too slow to offset broader selling. Analysts argue that this latent demand remained mostly inactive during July’s decline, further undermining market stability. Without robust buy-side support from whales or institutional allocators, the market’s resilience was seriously compromised.
Volatility Trends: Lower, But Still Significant
Interestingly, the volatility profile for bitcoin has softened since the launch of spot ETFs. BlackRock’s IBIT, for example, has seen its 90-day rolling volatility dip below 40 for the first time—down from over 60 at the ETF’s launch in January 2024.
BATTLE OF THE ALTS: Private asset boom is cooling off while digital assets, hedge funds steal market share in flows this year.. nice look at the breakdown in alternative asset flows from @denitsa_tsekova pic.twitter.com/UHjRlloUp0
— Eric Balchunas (@EricBalchunas) August 4, 2025
Balchunas points out that this reduced volatility has opened the door to larger, more risk-averse players: “It’s giving bitcoin a shot at being accepted as a mainstream currency.”
VOL KILLER: Since the launch of the ETFs the volatility on bitcoin has plumetted. The 90-day rolling vol is below 40 for the first time- it was over 60 when the ETFs launched. I threw in $GLD for perspective. Less than 2x gold, used to be over 3x. pic.twitter.com/r1S7WztJ4i
— Eric Balchunas (@EricBalchunas) August 4, 2025
Nonetheless, as July’s correction showed, the market remains vulnerable to sudden, liquidity-driven moves.
Bitcoin ETF volatility falls to multiyear lows. Source: CryptoQuant/Bloomberg.After the Outflow: Crypto Funds Feel the Strain
For the week of July 26 to August 1, crypto funds as a whole experienced $223M in net outflows—the first such streak in 15 weeks. This break in positive momentum reflects increased investor caution after months of steady gains and reinforces the market’s sensitivity to institutional capital flows.
Conclusion: What Comes Next?
July’s correction exposes key structural weaknesses in the current crypto market. With liquidity at a record low, ETF demand oscillating sharply, and “smart money” on the sidelines, bitcoin’s short-term path looks increasingly dependent on the next wave of institutional flows and broader market risk sentiment. For US investors, monitoring ETF data, exchange balances, and volatility metrics remains critical as the market adapts to the new post-ETF landscape.