Crypto ETF Flows: Capital Rotation from BTC to XRP ETFs

The outflow wave from Bitcoin ETFs has accelerated sharply. On February 4, 2026, the combined holdings of US-listed Bitcoin ETFs saw a net withdrawal of $602.7 million. This follows a sustained trend, with the average daily net outflow since January 16 now standing at $243 million. Across 12 trading days, this has totaled over $2.9 billion in capital withdrawals.

This massive capital rotation is directly linked to severe market pressure. The outflows coincide with Bitcoin's 26% price correction over three weeks, which triggered $3.25 billion in leveraged long liquidations. The outflows themselves are a key mechanism of this pressure, as ETF redemptions force underlying asset sales, adding downward momentum to the price action.

The situation is compounded by lingering market fragility. The liquidations wiped out leverage exceeding 4x, and the market is still digesting the aftermath of a prior $19 billion liquidation event in October 2025. With professional traders showing continued skepticism-evidenced by elevated options skew-this outflow wave suggests a lack of immediate buyer conviction to absorb the selling.

The Rotation: Capital Flees BTC for XRP ETFs

The capital rotation is stark. While Bitcoin and Ethereum ETFs saw $774 million in outflows in a single session, XRP ETFs attracted a net inflow of $16.79 million. This divergence signals a clear institutional shift away from the market leaders and into assets perceived to have clearer regulatory pathways.

The scale of XRP ETF accumulation underscores this strategic move. Since their November 2025 launch, these funds have managed over $1.37 billion in assets. This isn't speculative chasing; it's a slow-building institutional allocation. The recent $16.79 million inflow, led by funds like TOXR and XRPZ, follows a pattern of heavy redemptions during macro shocks, then high-conviction re-entry once pricing looks attractive again.

Viewed against the broader market context, this rotation is a classic risk-off play. It occurred as the total crypto market capitalization erased roughly $220 billion and majors like Bitcoin and Ethereum crashed. Yet XRP ETFs have held firm, with their combined assets now near $1.39 billion. This suggests professional capital is rotating into perceived "safer" altcoins within the crypto universe, creating a structural "liquidity lock" that could limit supply and amplify volatility.

Catalysts and Risks: The Path Forward for ETF Flows

The immediate technical battleground for Bitcoin is the pre-election support floor near $70,000. With the price hovering around $76,100, it is now approaching levels that could prove decisive. More critically, the average U.S. spot Bitcoin ETF holder is underwater, having entered the market at an estimated $81,600. This creates a powerful psychological and structural ceiling, as ETF holders have little incentive to buy more at current prices, potentially prolonging the downtrend until a clear catalyst emerges.

A major latent catalyst for the XRP ETF story is the potential filing of a BlackRock XRP ETF. Industry speculation points to a debut in late 2026 or early 2027. The success of current XRP ETFs, which have amassed over $1.37 billion in assets, provides a "proof of concept" that could unlock a massive influx of institutional capital. This would act as a powerful structural floor for XRP, reinforcing the "liquidity lock" that has already begun to amplify volatility in the spot market.

The overarching risk to both ETF flows is continued macro instability. Crypto markets remain highly sensitive to equity market volatility and geopolitical risk, as noted by Citi. The slow and uneven progress on a U.S. digital asset market structure bill dampens sentiment, while concerns over a shrinking Federal Reserve balance sheet historically weigh on crypto liquidity. These tail risks could prolong outflows from Bitcoin and Ethereum ETFs, keeping pressure on prices and delaying a broader market recovery.