Deutsche Bank: Bitcoin sell-off is a loss of confidence, not a crash; ETF outflows exceed 10 billion dollars

Deutsche Bank released a report on Wednesday stating that the recent Bitcoin sell-off reflects a loss of institutional confidence rather than a market collapse. Since October, inflows into US spot ETFs have fallen by more than $12 billion, causing Bitcoin to decouple from gold and stocks. Meanwhile, the Crypto Fear & Greed Index has dropped back into the extreme fear zone. Regulatory bill stagnation has reignited volatility, with 30-day volatility rising above 40%.

Institutional ETF Outflows Exceed $12 Billion as a Core Pressure

Deutsche Bank pointed out in its report that the Bitcoin sell-off is less about a single macro shock and more about a gradual erosion of confidence among institutions and regulators. The bank identified three main pressure points: ongoing outflows of institutional funds, the disintegration of Bitcoin’s correlation with traditional markets, and the loss of regulatory momentum that previously supported liquidity and volatility compression.

Analysts Marion Laboure and Camilla Siazon noted that the most immediate pressure comes from institutional selling. Since October, US spot Bitcoin ETFs have experienced large and persistent outflows, including over $7 billion in November, about $2 billion in December, and more than $3 billion in January. The total outflow has now exceeded $12 billion. This continuous net outflow indicates that institutional investors are systematically reducing their Bitcoin holdings.

This retreat by institutions sharply contrasts with the enthusiasm seen when ETFs were first launched in early 2024. At that time, BlackRock’s IBIT and Fidelity’s FBTC attracted hundreds of billions of dollars in inflows within just a few months, pushing Bitcoin’s price from $40,000 to $126,000. However, this interest reversed quickly after peaking in October 2024, with consecutive months of net outflows showing that institutional confidence in Bitcoin’s long-term prospects is waning.

Deutsche Bank emphasized that as institutions reduce their exposure and trading volume declines, Bitcoin becomes more vulnerable to sharp price swings. This “liquidity spiral” is the biggest structural risk in the current market: declining liquidity leads to increased volatility, which in turn discourages liquidity providers, creating a vicious cycle.

Timeline of Institutional ETF Capital Outflows

• November 2025: Outflows exceeding $7 billion
• December 2025: Outflows around $2 billion
• January 2026: Outflows over $3 billion
• Total Outflow: Over $12 billion

Market Impact: Liquidity diminishes, volatility surges above 40%

Market sentiment data also reinforce this trend. The Crypto Fear & Greed Index has fallen into the “extreme fear” zone, and Deutsche Bank’s own surveys show that the adoption rate of cryptocurrencies among US consumers has dropped to about 12%, down from 17% mid-2025. This decline in retail participation indicates that Bitcoin sell-offs are not only driven by institutional withdrawals but also by waning retail enthusiasm.

Bitcoin and Gold, Stock Markets Fully Decoupled

Deutsche Bank analysts highlight that Bitcoin’s correlation with familiar market anchors is increasingly weakening. The asset has sharply diverged from gold, which rose 65% in 2025, while Bitcoin declined by 6.5%, undermining its narrative as “digital gold.” This divergence is unprecedented; Bitcoin has long been promoted as “the gold of the 21st century,” sharing similar safe-haven qualities with gold.

Despite its reputation as “digital gold,” Bitcoin has diverged significantly from traditional safe-haven assets this year. While gold gained over 60% in 2025 due to central bank buying and increased demand for safety, Bitcoin has struggled, experiencing multiple monthly declines and underperforming major risk assets. This divergence exposes the awkward positioning of Bitcoin: during periods of high risk appetite, it underperforms tech stocks; during times of increased risk aversion, it underperforms gold.

Additionally, Bitcoin’s correlation with stocks has fallen into the mid-teens, far below the levels seen during early macro-driven sell-offs, when Bitcoin often moved in tandem with tech stocks. During the Federal Reserve’s rate hike cycle in 2022, Bitcoin’s correlation with the Nasdaq reached 0.7-0.8, with both moving almost in lockstep. Currently, this correlation has broken down, and Bitcoin has taken on a more independent downward trajectory.

Deutsche Bank’s analysis suggests that this decoupling causes Bitcoin to lose a clear investment rationale. When Bitcoin is uncorrelated with both risk assets and safe havens, it becomes difficult for investors to incorporate it into traditional asset allocation frameworks. This “two-heads” situation is a core reason for Bitcoin’s sell-off, as it no longer serves as a reliable component in diversified portfolios.

The report states that the current phase is a reset rather than a collapse, testing whether Bitcoin can move beyond belief-driven returns and regain support from regulation and institutional capital. This characterization views the current sell-off as a painful but necessary growth process, not an end. However, it also acknowledges that the threshold for regaining market trust has risen significantly.

Regulatory Stagnation Reignites Volatility Compression Loss

Regulatory uncertainty is identified as the third major obstacle by Deutsche Bank. The bipartisan Digital Asset Market Clarity Act has stalled in Congress due to disagreements over stablecoin provisions. Deutsche Bank notes that during this pause, previous market stability gains have been reversed, with Bitcoin’s 30-day volatility rising back above 40%, approaching late October levels.

The impact of regulatory delays is multifaceted. First, it increases market uncertainty, making it harder for institutional investors to commit to long-term allocations. Second, the lack of a clear regulatory framework exposes traditional financial institutions offering crypto services to legal risks, limiting product innovation and market access. Third, the ambiguity surrounding stablecoin regulation hampers the development of crypto payment solutions, weakening Bitcoin’s utility narrative.

Deutsche Bank’s report suggests that the loss of regulatory momentum is a structural reason behind Bitcoin’s sell-off. From late 2024 to early 2025, markets anticipated a more favorable regulatory environment under a Trump administration, which helped propel Bitcoin’s price higher. However, actual progress has been much slower than expected. While the revocation of SAB 121 and the OCC’s Letter 1188 are positive steps, their impact and speed are insufficient to sustain market optimism.

Analysts commented: “Although Bitcoin’s recent price decline appears significant relative to its longer-term history, it reflects a correction of the speculative excesses of the past two years, indicating room for maturation.” Essentially, this means that Bitcoin’s sharp rise in 2024 was largely driven by speculation, lacking solid fundamentals, and the current correction is a reversion from overly optimistic levels.

Since peaking in October 2025, the crypto market has been in a prolonged decline, with Bitcoin falling over 40% from its high and experiencing its fourth consecutive month of decline—an unprecedented streak since before the pandemic. Unlike previous macro-driven sell-offs, this decline has occurred alongside rebounds in stocks and gold, highlighting weak demand and diminishing momentum.

Nevertheless, Deutsche Bank warns against overinterpreting the decline. Even after the correction, Bitcoin remains about 370% above its early 2023 high, reflecting the speculative premium built during the rebound. This long-term perspective reminds investors that, despite short-term pessimism, Bitcoin has still achieved substantial growth over a longer horizon.

J.P. Morgan told clients on Tuesday that the world’s largest cryptocurrency is trading below key ETF cost levels, and with inflows decreasing and headwinds intensifying, it is approaching pre-election price floors. At the time of writing, Bitcoin was trading around $63,400.