Institutional investors pull back from crypto amid regulatory crackdown

In the wake of the crackdown on the United States’ regulatory system, institutional investors may have been squeamish about cryptocurrency. Digital asset investment products saw the largest weekly outflows of any asset class in 2023.

CoinShares, an institutional cryptocurrency fund manager, stated on February 20th that digital asset investments products had suffered withdrawals totalling $32 million. This was the largest outflow for the year. This was the biggest outflow since the start of the year.

This outflow comes after a major crackdown on the US digital asset industry. The Securities and Exchange Commission has increased what industry analysts call its “war against crypto” by targeting everything from staking service to stablecoins and crypto custody. As they ramp up their “war on cryptocurrency,” the SEC has targeted everything, including staking services, stablecoins and crypto custody.

James Butterfill, CoinShares analyst, said that outflows reached $62 million at the halfway point of the previous week but dropped to $52 million by the end as sentiment improved.

The majority of these withdrawals (78%), were made using investment instruments that are connected to Bitcoin.BTCDuring this period, Bitcoin short funds received an injection of $3.7 million. The increased scrutiny by regulators was a factor in the company’s responsibility for the rising outflows.

We believe this is due to the fact that ETP investors have a less optimistic outlook on recent regulatory pressures within the United States than investors in other markets.

The general market saw a 10% gain over the same time period, which is not indicative of institutional investors’ pessimistic outlook. Butterfill stated that institutional product assets now total $30 million. This is the highest level since August.

Blockchain equities, however, reversed the trend and saw inflows of $9.6 million during the week. Over the same time, withdrawals were also seen in mixed-asset and Ethereum funds.

Institutional investors returned to investing in cryptocurrency funds in January. Total inflows for the week ended on January 31st were $117 million, a new record in the past six months.

Despite this, withdrawals from funds occurred during the last two week, following a period in January where there had been deposits for four weeks.

This shift in attitude could be due to the regulatory enforcement action taken against Kraken on February 9th, when the SEC brought criminal charges against Kraken regarding the staking services it provided. The SEC filed a lawsuit against Paxos just days later regarding the minting and sale of Binance USD (BUSD). A week prior, it had suggested reforms to affect custodians and cryptocurrency companies.

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