Markets at the Start of Q4: Capital Exits Cash and Returns to Risk

Markets at the start of Q4 look unusual: the cost of money is at its highest in the last 24 years, yet investors are not shying away from risk. The yield on 10-year U.S. Treasury bonds rose to 5.34% last week, the highest level since 2002. The DXY dollar index gained 2% in September, Brent is hovering around $100, yet the S&P 500 and Nasdaq finished Q3 in the green, with BTC rising by 43% and ETH by 71%.

This picture does not fit the usual market logic. Typically, rising yields pressure risky assets, a strong dollar and high real rates hinder gold, and weak macro statistics amplify recession fears. However, over the past two months, these dependencies have noticeably weakened. The main reason is the shift in the direction of cash flows.

Money Exits Money Market Funds

The key source of demand for risk has become money market funds. In the past week, $116.5 billion was withdrawn from them — the largest outflow since April, despite short-term instruments yielding over 4%. Some of these funds are returning to stocks and cryptocurrencies even with Treasury yields above 5%.

This is helping indices withstand rates that would have pressured them much more in a more typical market structure. Sentiment is unevenly distributed: greed prevails in cryptocurrencies, while stocks see cautious demand with protection.

Back in June, cryptocurrency ETFs showed the worst monthly performance of 2026, while stocks were near their highs with low volatility. Now the situation has reversed. The Fear and Greed Index in the crypto market was at 74 on September 28, open interest is rising along with prices, and BTC approached the $86,000–90,000 zone. Buyers are acting as if they fear missing the movement.

In the stock market, the tone is different. Inflows are maintained, but investors are actively hedging: the skew in options is high, large participants are buying long puts, $2.3 billion left high-yield bond funds in a week, and small-cap stocks lost 7.5% over the quarter. A VIX around 16 indicates relatively cheap protection, so insurance is being taken out in advance while it is still inexpensive.

The Crypto Market Has Its Own Institutional Flow

Compared to previous cycles, the mechanics of capital movement have changed. Previously, cryptocurrencies primarily followed risk appetite in stocks and declining rates, with retail investors often joining in the final phase of growth. Now the crypto market is growing at the highest rates in 24 years and has a separate institutional channel through ETFs. Stocks are being supported by passive flows and already purchased protection.

This gap in sentiment creates asymmetry. In cryptocurrencies, leverage is increasing faster than spot demand: according to CoinGlass, inflows into ETFs amounted to $72 million in the past week. A week earlier, only BTC funds attracted about $2.4 billion. In other words, the fuel for growth is being consumed faster than new capital is coming in. In stocks, the situation is different: a significant portion of protection has already been purchased, which reduces the risk of a panic reaction to bad news.

ETFs have become the main channel for capital inflow into the crypto market. The total assets under management of crypto ETFs reach $125.7 billion. There are 32 funds from 11 issuers operating in the market. Over the last 90 days, they received $10.0 billion, and over the last 30 days — $3.2 billion. For comparison, in June, funds faced an outflow of about $5.0 billion, which was the worst monthly result of the year. The turnaround from strong outflows to inflows in just one quarter shows how quickly capital behavior has changed.

The distribution of funds is uneven. According to daily data from CoinGlass, BTC funds attracted $190 million, SOL funds brought in $1.3 million, and HYPE-ETF garnered $3.4 million. Meanwhile, ETH funds lost $17 million, and XRP funds saw a decline of about $3 million. The main flow is directed towards BTC, while other assets are selectively chosen based on compelling narratives for investors.

Rotation within the Crypto Market: Assets with Narrative and Funds Lead

In addition to ETFs, the market is also seeing themes of perpetual futures and RWA. Demand for HYPE, the native token of the Hyperliquid ecosystem, is supported by purchases from Hyperliquid Strategies, programmatic buybacks funded by protocol fees, and ETFs on HYPE. ONDO, a leader in the RWA sector, is growing on the institutional idea of tokenization; however, record open interest at the end of September poses a risk of a sharp deleveraging. SOL has gained 60% over the quarter amid inflows into ETFs.

Capital is increasingly favoring coins where three factors align: an institutional narrative, real inflows through ETFs or treasuries, and a clear revenue or token buyback mechanism. Therefore, the market is no longer moving as a unified front behind BTC. It has split into assets receiving flows and all others.

Weak Employment Did Not Scare the Market

The September employment report turned out weak: the economy added 29,000 jobs against a forecast of about 90,000, with unemployment at 4.2%. The market interpreted this data more positively. By October 5, the probability of a rate hike in October dropped below 20%.

An important factor often underestimated plays a role here. In the artificial intelligence sector, there are signs of overheating, but capital investments in data centers, energy, and construction simultaneously support the economy and may enhance productivity. Part of the rise in unemployment appears structural: automation and robotization reduce the need for hiring. Companies maintain profits with fewer new employees, pressure on rates eases, and weak statistics are not perceived as a direct signal of recession. Overall, the market condition is assessed as good.

Gold Confirms Distrust in Long-Term Debt

Gold's behavior fits the same logic. The metal hovers around $4150–4200 with real, inflation-adjusted bond yields around 2.9% and a strong dollar. Previously, such a combination exerted significantly more pressure on prices.

The September correction of 6.6% removed speculative layers, but there was no mass capital exit. Central banks continue to buy gold regardless of interest rates. The reason is similar to the cautious attitude of private managers towards long bonds: trust in long-term debt is declining.

The Main Risk - Iran, Oil, and Diesel

The most serious stress for the markets is related to the war with Iran. Investors are currently enduring this factor as they anticipate the end of the escalation. If there is no de-escalation by the end of the year, pressure may sharply increase: winter is ahead, and diesel is already in short supply. Russia has extended its ban on diesel exports until the end of October, and China has suspended fuel exports for October.

The first price spike occurred after the start of the war with Iran at the end of February: in the week leading up to March 9, the price rose by 96 cents. There was a pullback to $4.58 in the summer, but then the rise resumed, and the weekly high on September 21 exceeded the 2022 record. The seasonal peak of winter demand is ahead.

Expensive diesel is passed on to inflation through transport and production. If this pressure persists, the Fed may need to raise rates further, and long bonds could face new selling pressure. A risk window may open after the U.S. elections on November 3, when the administration may have fewer incentives to curb fuel prices.

An early indicator to watch is the outflow from high-yield bonds. As long as it remains moderate, the credit market does not confirm a sharp deterioration.

Scenarios for BTC and the Market Until Year-End

The structure of the crypto market currently looks positive. The bottom of the current cycle has likely formed around $57,800. BTC has closed with growth for three consecutive months, and institutional inflows have returned. ETH outperformed BTC in Q3: +71%, although it lagged in the previous two quarters. Meanwhile, BTC has approached the zone of $86,000–90,000, where early buyers are starting to take profits.

The base scenario, with a probability of 50%, suggests BTC consolidation in the range of $78,000–92,000. Dips to $78,000–81,000 are being bought up, and by the end of the year, the price is expected to reach the upper boundary of the range. The leaders of the flow — HYPE, SOL, and the RWA sector — appear stronger than the market, while high-risk coins with unlocks are lagging behind.

The positive scenario, with a probability of 20%, includes de-escalation, a pause from the Fed in October and December, BTC in the range of $90,000–95,000, and ETH at $3,100–3,400.

The negative scenario, with a probability of 30%, is related to strikes on Iran after the elections and oil prices above $110. In this case, BTC could drop to $60,000–65,000, but with a quick buyback and the formation of a double bottom. Stocks may see a correction of 8–12%, with small-cap stocks and coins with record leverage being hit the hardest.

What This Means for Markets

High inflation and competition among funds have pushed capital out of bonds and cash into risky assets. Stocks are supported by passive flows and pre-purchased protection, while cryptocurrencies have gained their own institutional channel and are moving on strong risk appetite. Therefore, the sentiment in stocks and crypto has swapped places.

Capital is not choosing the entire market at once, but rather assets with real inflows, strong narratives, and clear economics. Media is amplifying fears around rates and a potential bubble in artificial intelligence, but the mechanics of flows currently indicate continued growth. The main condition is that international political tensions must decrease by winter.