Weekly Digest: May 2025 | Week 1

Highlights

• Crypto ETFs saw $740M in outflows, signaling growing institutional caution.

• Sovereign wealth funds accelerated Bitcoin acquisitions, reinforcing Bitcoin's appeal as a strategic reserve asset.

• UK introduced a comprehensive crypto regulation draft, aiming to boost transparency while exempting overseas stablecoin issuers.

• U.S. eased crypto regulations for banks, fueling optimism for broader adoption.

• Hong Kong and South Korea advanced crypto-friendly policies, supporting global institutional expansion into digital assets.

ETF Outflows Reflect Institutional Caution

After a period of sustained inflows in March, the first week of April brought a notable shift: net outflows of $740 million from crypto ETFs, the sharpest reversal since early 2024.

Bitcoin-focused ETFs, which had enjoyed inflows following favorable macro signals and growing corporate adoption, saw the majority of the pullback. However, it was Ethereum-related products that stood out for their underperformance. While Bitcoin ETFs retained relative resilience, Ethereum ETFs accounted for nearly 30% of the outflows, reflecting a clear divergence in investor sentiment.

This caution coincided with broader risk-off moves across financial markets, as escalating global trade tensions and persistent inflation concerns weighed heavily on investor confidence. Bond yields continued to climb, liquidity tightened, and appetite for risk assets diminished, impacting not only crypto markets but also equities and commodities.

Our take:
The ETF outflows suggest that while institutional interest in crypto remains structurally intact, short-term sentiment is sensitive to broader macro conditions. Ethereum’s relative underperformance against Bitcoin reinforces the market's preference for the leading digital asset amid uncertainty.

Sovereign Wealth Funds Increase Bitcoin Holdings

In a more positive institutional trend, Coinbase Institutional reported a significant uptick in Bitcoin acquisitions by sovereign wealth funds during early April.

Countries with substantial reserves, seeking alternative stores of value amid currency volatility and evolving geopolitical tensions, are increasingly turning to Bitcoin. These purchases reflect not only portfolio diversification but also a strategic bet on Bitcoin’s long-term role as "digital gold."

Although the report did not disclose exact figures, anecdotal evidence suggests that sovereign allocations now represent a meaningful portion of recent OTC trading volumes. Some market participants speculate that sovereign interest could eventually rival that of corporate treasuries if regulatory clarity continues to improve globally.

Our take:
Sovereign wealth fund involvement adds a critical layer of credibility to Bitcoin’s narrative as a reserve asset. Unlike retail or speculative flows, sovereign interest tends to be strategic, long-term, and relatively price-insensitive—potentially creating a strong floor for Bitcoin during future downturns.

UK Advances Crypto Regulatory Framework

On April 29, the UK government introduced a draft legislative package to regulate cryptocurrency exchanges, brokers, custodians, and agents.

The proposed rules focus on three pillars:

• Transparency: Requiring clear reporting and disclosures from crypto firms, including operational risks and token listings.

• Consumer Protection: Mandating safeguards to protect retail investors from unfair practices and excessive risk.

• Operational Resilience: Implementing standards to ensure business continuity and cybersecurity preparedness.

Interestingly, the UK draft proposes exempting overseas stablecoin issuers from some of the most stringent domestic requirements, signaling a desire to maintain open access to international innovation while prioritizing oversight on locally based operations.

This balanced approach reflects the UK's ambition to establish itself as a global hub for digital assets, competing with jurisdictions like Singapore, Hong Kong, and Switzerland for institutional business.

Our take:
The UK’s regulatory efforts are a welcome step forward. Striking the right balance between innovation and security is crucial, and by recognizing the different risk profiles of domestic vs. international operators, the UK positions itself as a pragmatic and attractive market for institutional participants.

U.S. Eases Crypto Regulations for Banks

In a significant reversal of previous regulatory guidance, the Federal Reserve, FDIC, and OCC announced a coordinated rollback of their earlier cautious stance toward crypto-related activities for banks.

Under the new guidance:

• Banks can now directly custody digital assets for clients, provided they meet minimum operational and cybersecurity standards.

• Crypto lending and staking are permitted under strict risk management frameworks.

• Banks are encouraged to collaborate with fintechs and crypto-native firms to enhance service offerings.

This shift aligns with the Trump administration’s broader pro-crypto policy platform and is designed to stimulate innovation, competition, and capital formation within the U.S. financial system.

Market participants cheered the decision, with crypto banking stocks such as Silvergate and Signature Bank (revived under new ownership structures) seeing sharp rallies.

Our take:
This policy pivot opens the door to accelerated mainstream adoption. By granting traditional banks more freedom to engage with digital assets, the U.S. creates a powerful bridge between the old and new financial systems, unlocking new sources of liquidity and institutional demand.

Global Developments in Institutional Crypto Adoption

Hong Kong:
On April 7, the Hong Kong Monetary Authority (HKMA) issued formal guidelines for authorized institutions offering staking services for virtual assets.

Key requirements include:

• Comprehensive internal control mechanisms for staking operations.

• Clear risk disclosures to customers regarding staking risks and rewards.

• Due diligence standards when engaging third-party staking providers.

This regulatory clarity enhances Hong Kong’s standing as a serious contender for institutional digital asset businesses in Asia, complementing its efforts to become a leading hub for tokenized securities and digital asset custody.

South Korea:
In another landmark development, the South Korean government announced plans to lift its longstanding ban on institutional crypto trading, starting with gradual implementation in 2025.

The policy shift includes:

• Allowing banks and regulated investment firms to participate in crypto trading and custody.

• Introducing licensing frameworks for crypto exchanges and custodians tailored for institutional clients.

• Requiring full transparency on customer asset segregation and reserve management.

South Korea's government framed the move as necessary to align with global regulatory standards and foster sustainable crypto innovation within a structured legal environment.

Our take:
Hong Kong and South Korea’s regulatory advances signal that Asia will play a critical role in shaping the next wave of crypto adoption. As Europe and the U.S. focus on fine-tuning existing frameworks, Asian financial centers are actively courting institutional business, expanding crypto’s global footprint.

Closing Thoughts

The first week of May offered a complex, yet encouraging picture for crypto markets:

• ETF outflows show that while institutions are engaged, they remain cautious and macro-sensitive.

• Sovereign wealth funds and corporates are doubling down on Bitcoin, highlighting its growing role as a strategic asset.

• Regulatory clarity is advancing across major jurisdictions—the U.K., U.S., Hong Kong, and South Korea are all laying foundations for broader institutional participation.

Despite headwinds from bond market volatility and geopolitical tensions, Bitcoin’s resilience and the growing maturity of regulatory frameworks suggest that crypto is steadily evolving from a speculative frontier into a structured, investable asset class.

At FinchTrade, we remain committed to supporting our clients with deep liquidity, expert execution, and tailored market insights—helping you navigate every phase of the market cycle.

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