US regulatory crackdown leads to $32M digital asset outflows: CoinShares

Institutional investors may have gotten the jitters on crypto in the wake of the regulatory crackdown in the United States, with digital asset investment products seeing the largest weekly outflow of 2023.

On Feb. 20, institutional crypto fund manager CoinShares reported that digital asset investment products saw outflows totaling $32 million last week, the largest outflow of the year.

This week in Fund Flows, by our Head of Research @jbutterfill :

Digital assets see US$32m in outflows, but rising prices push AuM to highest since August 2022.

Read the full report – https://t.co/EIXblrOBcL

Get a comprehensive view of last week’s crypto flows (1/5) pic.twitter.com/WvJk15WAWs

— CoinShares (@CoinSharesCo) February 20, 2023

The outflow comes in the wake of a massive crackdown on the digital asset industry in the U.S. which has targeted everything from staking services to stablecoins to crypto custody as the Securities and Exchange Commission ramps up what industry analysts have dubbed its war on crypto.

Outflows hit $62 million midway through last week but slowed by the end of it as sentiment improved, added CoinShares analyst James Butterfill.

The majority of those outflows, or 78%, were from Bitcoin (BTC) related investment products and there was an inflow of $3.7 million to Bitcoin short funds. The firm blamed the regulatory crackdown for the increased outflows.

“We believe this is due to ETP investors being less optimistic on recent regulatory pressures in the US relative to the broader market.”

However, negative sentiment from institutional investors was not mirrored by the broader markets which saw a 10% gain for the period. This pushed total assets under management for institutional products to $30 million, the highest level since August 2022, noted Butterfill.

There were also outflows for Ethereum (ETH) and mixed-asset funds but blockchain equities bucked the trend with inflows totaling $9.6 million for the week.

Institutions started pouring capital back into crypto funds in January with inflows for the last week of the month totaling $117 million, reaching a six-month high.

However, funds have seen outflows for the past fortnight following four weeks of inflows in January.

The regulatory enforcement action responsible for the sentiment shift includes the SEC’s charges against Kraken for its staking services on Feb. 9. A few days later it sued Paxos over the minting of Binance USD (BUSD), and it also proposed changes targeted at crypto firms operating as custodians last week.