AI-to-Crypto Rotation? ETF Inflows Fuel Crypto Rally

Crypto markets showed renewed signs of life this week as institutional investors fueled the longest streak of inflows into US spot Bitcoin exchange-traded funds (ETFs) since April and crypto-linked stocks rallied on optimism over US regulation. But the more intriguing story may be unfolding outside crypto: AI’s grip on speculative capital is beginning to loosen.

After dominating markets for nearly two years, the AI trade is becoming more selective as investors distinguish between companies with sustainable earnings and those riding the hype cycle. The Philadelphia Semiconductor Index, or SOX, recently slipped into a technical bear market after falling 20% from its recent high, although it remains well above year-ago levels.

Some analysts believe the shift could mark the beginning of a broader rotation back into digital assets. While it’s too early to call a lasting trend, improving regulatory clarity, a recovery in ETF demand, and easing enthusiasm for AI are creating a more constructive backdrop for crypto than investors have seen in months.

Bitcoin ETFs post six-day inflow streak as market sentiment improves

US spot Bitcoin ETFs extended their inflow streak to six consecutive trading days, attracting $203.1 million in fresh capital as institutional demand showed tentative signs of recovery.

The latest inflows brought the six-day total to roughly $930 million, marking the funds’ longest winning streak since April as Bitcoin briefly climbed above $67,000. The renewed demand coincided with improving market sentiment, with the Crypto Fear & Greed Index recovering from “extreme fear” to “fear.” 

Since launching in January 2024, US spot Bitcoin ETFs have attracted $51.8 billion in cumulative net inflows and now hold $80.9 billion in net assets, although they remain down $4.84 billion on a year-to-date net flow basis. Analysts said Bitcoin needs to hold above the $65,000-$65,500 range to strengthen the case for a sustained bullish breakout.

Crypto rally gains momentum as AI trade shows signs of cooling

The rally in Bitcoin and broader digital asset markets coincided with progress on US crypto legislation and a cooling AI trade, fueling expectations that capital may be rotating back into crypto.

The broader crypto market rallied alongside crypto-related stocks, with Coinbase, American Bitcoin and Cipher Digital posting double-digit percentage gains. Sentiment brightened after US Treasury Secretary Scott Bessent said lawmakers were at the “1-yard line” on the CLARITY Act, legislation that would establish a regulatory framework for digital assets. 

Analysts also pointed to fading momentum in AI equities as another potential catalyst. FRNT Financial CEO Stephane Ouellette said that slowing enthusiasm for AI stocks and growing confidence in the interest-rate outlook could support a breakout in Bitcoin. The SOX Index, a benchmark for AI chipmakers, had recently fallen more than 20% from its recent high after concerns over elevated valuations and AI infrastructure spending.

AI infrastructure deals drive rally in Bitcoin mining stocks

Bitcoin mining stocks surged after Hut 8 and IREN unveiled multibillion-dollar AI infrastructure agreements, reinforcing the sector’s lucrative shift toward data centers and cloud computing as digital asset markets continued to struggle. 

Hut 8, IREN, Cipher Digital, CleanSpark and MARA Holdings each gained after Hut 8 announced a 15-year, $9.8 billion lease for its AI data center campus and IREN disclosed $2.8 billion in cloud services contracts with AI developers. The deals underscore how miners are diversifying beyond Bitcoin production as mining economics become more challenging, with IREN now projecting more than $4 billion in annual recurring AI cloud revenue by the end of 2026. 

While investors have rewarded the AI pivot, analysts say it also raises new questions around execution and funding. Blocksbridge Consulting estimates the sector will require roughly $50 billion in additional capital to achieve its AI ambitions, even as insider stock sales have drawn increased scrutiny.

The TEM AI Infrastructure Growth Index. Source: The Energy Mag

Bernstein sees tokenization, prediction markets driving Robinhood’s next growth phase

Bernstein raised its price target on Robinhood, arguing the brokerage’s long-term growth will be fueled by tokenized assets and prediction markets rather than traditional crypto trading.

The investment firm increased its price target on Robinhood shares to $160 from $130 while maintaining an Outperform rating. Analysts forecast prediction markets will become the company’s fastest-growing business, generating $1.7 billion in revenue by 2028. Bernstein also identified tokenized equities as a major growth opportunity, citing Robinhood’s Arbitrum-based layer-2 network as key infrastructure for bringing real-world assets onchain. 

The bullish outlook comes as Wall Street accelerates its tokenization push, with companies such as Broadridge, Alpaca, Securitize and Cantor Fitzgerald expanding blockchain-based securities infrastructure. 

Bernstein identified prediction markets, perpetual futures and tokenized equities as key competitive battlegrounds for Robinhood. Source: Bernstein

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