Institutional Investors Retreat from Cryptocurrencies in the Face of Regulatory Pressure
Institutional investors may have been uneasy about cryptocurrencies following the regulatory onslaught in the US. As a result, across all asset classes in 2023, digital asset investment products experienced the biggest weekly outflow.
The largest outflow of the year, $32 million, was made from digital asset investment products over the past week, according to the institutional cryptocurrency fund management company CoinShares on February 20. From the year’s beginning, this was the biggest outflow.
The SEC has targeted everything from staking services to stablecoins to crypto custody as it escalates what industry analysts have dubbed its “war on crypto.” The outflow follows a massive crackdown on the digital asset industry in the United States, which has targeted everything from staking services to stablecoins to crypto custody.
The previous week’s withdrawals peaked at $62 million midway through, but they decreased by the conclusion of the week as sentiment improved, according to CoinShares analyst James Butterfill.
The great majority of these withdrawals, or 78%, were from Bitcoin (BTC)-related investment instruments, whereas $3.7 million was invested into Bitcoin short funds during this time. The corporation pointed the finger of blame for the rising outflows at the increased regulatory scrutiny.
We believe that this is the case because, compared to investors in the broader market, ETP investors are more negative about recent regulatory pressures in the United States.
Despite this, the whole market saw a rise of 10% throughout the relevant time frame, which contrasted with institutional investors’ negative attitude. According to Butterfill, this resulted in the institutional products’ total assets under management reaching $30 million, which is the highest level since August.
Blockchain-related stocks, on the other hand, bucked the trend with $9.6 million in weekly inflows. At the same time frame, money was also taken out of mixed-asset funds and Ethereum (ETH).
Institutional investors started investing again in cryptocurrency funds in January, with total inflows of $117 million for the final week of the month setting a new high for the previous six months.
Nonetheless, after four weeks of deposits in January, there have been withdrawals from funds over the past two weeks.
The SEC’s regulatory enforcement action against Kraken for the staking services it offered on February 9 may be responsible for the shift in perspective. A week before, it proposed reforms that would impact cryptocurrency companies that act as custodians. A few days later, it filed a lawsuit against Paxos regarding the creation of Binance USD (BUSD), and only a week earlier, it suggested reforms.
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