The SEC is targeting all elements of the cryptocurrency business in the United States, and institutional investors are feeling the fire. Institutional investors may have been put off by the regulatory crackdown in the United States, as digital asset investment products saw the highest weekly outflow in 2023.
On February 20, institutional crypto fund manager CoinShares stated that digital asset investment products witnessed $32 million in withdrawals last week, the highest outflow of the year.
This week in Fund Flows, by our Head of Research @jbutterfill :— CoinShares (@CoinSharesCo) February 20, 2023
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
The outflow follows a significant assault on the digital asset market in the United States, which has targeted everything from staking services to stablecoins to crypto custody as the Securities and Exchange Commission escalates what industry experts have nicknamed its war on crypto.
Outflows peaked at $62 million in the middle of last week but decreased by the end as mood improved, according to CoinShares analyst James Butterfill.
Regulatory Crackdown and The Increasing Flows
Most outflows, or 78%, came from Bitcoin-related financial products, while Bitcoin short funds received $3.7 million. The corporation blamed the increasing flows on the regulatory crackdown.
“We believe this is due to ETP investors being less optimistic on recent regulatory pressures in the US relative to the broader market.”
Yet, institutional investors’ bearish mood was not matched by the broader markets, which gained 10% throughout the period. According to Butterfill, this increased total assets under management for institutional products to $30 million, the highest amount since August 2022.
Ethereum and mixed-asset funds also saw withdrawals, although blockchain equities defied the trend, with inflows reaching $9.6 million weekly.
Institutions began reinvesting in crypto funds in January, with inflows topping $117 million in the last week of the month, a six-month high. Nevertheless, after four weeks of inflows in January, funds have suffered outflows over the previous two weeks.
The regulatory enforcement step contributing to the shift in opinion was the SEC’s accusations against Kraken for its staking services on February 9. A few days later, it sued Paxos over the minting of Binance USD (BUSD) last week. It suggested reforms aimed at crypto businesses acting as custodians.