The downgrade marks a sharp reversal from Citi's previous outlook, which assumed passage of U.S. digital asset market structure legislation would spur adoption among financial advisors and traditional investors. The bank now believes that timeline has slipped, leaving the market without a meaningful catalyst.
Saunders said ETF flows continue to be the main force behind crypto prices, with recent demand turning negative as investors pulled back from risk.
According to the bank's analyst, sentiment has also been hurt by concerns that digital asset treasury (DAT) companies could become net sellers of bitcoin. Recent corporate actions by Strategy amplified those fears despite involving relatively modest BTC sales.
The report noted that bitcoin and ether both remain below key technical levels, including their 200-day moving averages, while speculative capital has shifted toward AI-related investments.
The bank's revised forecasts assume flat ETF flows in its base case. In its bull case, stronger retail and institutional adoption lifts bitcoin to $108,000 and ether to $2,932. Its bear case, based on recessionary macro conditions and continued ETF outflows, sees BTC falling to $53,000 and ETH to $1,094.
While the bank's equity strategists have become more constructive on U.S. stocks, providing some support through crypto's equity correlation, the report said that positive macro factors are insufficient to offset weakening flows.