JPMorgan Says Crypto De-Risking Is Likely Over as ETF Flows Stabilize

JPMorgan analysts reported that crypto ETF flows are showing signs of stabilization in early January 2026, marking a potential end to the recent period of de-risking. This follows a month of outflows in December, with investors reducing exposure to crypto assets amid uncertainty around market positioning and index treatment. The shift to a more balanced flow dynamic suggests a transition from panic selling to tactical rotation among investors.

The correction in crypto markets during late 2025 was largely driven by investor de-risking following MSCI's October announcement regarding index adjustments, not by worsening liquidity conditions. This was evident in the ETF outflows and perpetual futures market data, which pointed to a broader repositioning of portfolios rather than a liquidity crisis. The distinction is important for understanding the underlying dynamics of the market correction and whether it is structural or cyclical in nature.

MSCI's February 2026 index review decision has added clarity to the situation. The firm decided to retain digital asset treasury companies (DATCOs) in its global equity benchmarks, providing temporary relief to firms such as Strategy (MSTR). While MSCI indicated it will conduct a broader review of these companies, the decision has reduced the near-term risk of forced selling from passive index funds. This has helped stabilize equity prices for companies with crypto holdings and reduced uncertainty among institutional investors.

Why Did This Happen?

The recent market correction was largely the result of de-risking behavior triggered by MSCI's October index adjustments, according to JPMorgan analysts. This led to a wave of ETF redemptions and position reductions across both retail and institutional portfolios. The absence of liquidity deterioration as a primary factor suggests that the selloff was more about risk management than a market malfunction.

This dynamic is supported by the fact that equity ETFs globally recorded record inflows in December, while crypto ETFs faced outflows. This divergence highlights the impact of index-related uncertainty on investor sentiment and positioning. As MSCI's decision now removes the near-term risk of forced selling, it has allowed for a more neutral rebalancing of portfolios rather than a panic-driven liquidation.

How Did Markets React?

Early January 2026 saw a shift in flow patterns for crypto ETFs. U.S. spot Bitcoin ETFs recorded $697.25 million in net inflows on January 5, followed by $243 million in outflows on January 7. This two-way flow is a key indicator of market stability and suggests that investors are engaging with the asset class in a more balanced and strategic manner.

The two-way flow dynamic is also reflected in perpetual futures and CME bitcoin futures positioning, where signs of easing selling pressure are emerging. This indicates that the earlier wave of de-risking has largely subsided, with institutional and retail investors returning to more normalized positioning.

What Are Analysts Watching Next?

Analysts are closely monitoring onchain indicators and institutional positioning for signs of renewed capital formation. While ETF inflows have provided short-term support, the broader trend in realized capitalization and long-term holder behavior suggests ongoing caution among market participants. This divergence between ETF activity and onchain fundamentals could signal a period of consolidation rather than a definitive bull market resumption.

Market observers are also tracking the impact of MSCI's index review on investor behavior. The freezing of share counts for DATCOs has effectively broken the automatic demand loop that previously supported these companies' equity prices. This means that firms like Strategy now face the challenge of attracting active investors rather than relying on passive index tracking to absorb new equity issuance.

Looking ahead, JPMorgan analysts suggest that further stabilization could be reinforced by a broader market reallocation away from crypto-equity proxies into traditional ETF products. This shift could benefit institutional investors who are seeking more direct exposure to Bitcoin through structured ETFs rather than indirectly through equity-linked vehicles.

In the short term, the crypto market appears to be supported by inflows, but analysts caution that sustained upside will require a broader expansion in onchain capital formation. This would likely require renewed institutional interest and favorable macroeconomic developments, rather than reliance on secondary market demand alone.

The coming weeks will likely reveal whether the current stabilization is a temporary pause or the beginning of a more sustained recovery in crypto markets. Investors are advised to monitor both ETF flows and onchain activity as key signals for positioning decisions.