The ongoing regulatory crackdown on the cryptocurrency market in the US is starting to hurt institutional investors, as evidenced by the record-breaking weekly outflow of funds for investments in digital assets.
CoinShares, a crypto fund management firm, reported a total of $32 million in withdrawals for digital asset investment products in the previous week. This is so far, the largest outflow documented for 2023.
According to a CoinShares’ tweet:
“Digital asset investment products saw outflows totalling US$32m last week, the largest since late December 2022. Mid-way through last week the outflows were much higher at US$62m, but sentiment improved by Friday.”
Withdrawals from bitcoin-related financial instruments accounted for 78% of total withdrawals, with $3.7 million flowing to bitcoin short funds. Coinshares attributed the increasing outflows to a regulatory crackdown..
CoinShare stated:
“We believe this is due to ETP investors being less optimistic on recent regulatory pressures in the U.S. relative to the broader market.”
Staking services, stablecoins, and crypto custodians are targets of the U.S. Securities and Exchange Commission (SEC) in its ongoing crackdown which has been dubbed the “war on crypto” by market watchers.
The regulatory body’s action on February 9 against Kraken for providing staking services influenced the change in public sentiment. Days later, it filed a lawsuit against Paxos regarding the issuance of Binance USD (BUSD) stablecoins. The SEC also proposed regulatory policy changes targeted at cryptocurrency companies serving as custodians just last week.
Interestingly, the pessimistic sentiment of institutional investors, who withdrew their investments, did not reflect the general markets, which saw a 10% rise. James Butterfill, a Research Analyst at CoinShares, noted that this increased the total assets under management for institutional products to $30 million, the highest amount since August 2022.
Ethereum and mixed-asset funds also had outflows, although inflows totaling $9.6 million for the week were seen in blockchain equities, defying the general trend.
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