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US Regulatory Crackdown Leads to $32M Digital Asset Outflows: CoinShares

As the SEC tackles all facets of the cryptocurrency business in the US, institutional investors are feeling the fire.

The regulatory crackdown in the United States may have given institutional investors the chills, as digital asset investment products experienced the biggest weekly outflow of 2023.

The greatest outflow of the year, $32 million, was recorded in the last week for digital asset investment products, according to a report by institutional crypto fund management CoinShares on February 20.


The outflow occurs after the Securities and Exchange Commission intensifies what market watchers have nicknamed its “war on crypto,” which has targeted everything from staking services to stablecoins to crypto custody.

According to CoinShares analyst James Butterfill, outflows peaked at $62 million midway through last week but decreased by the end as sentiment increased.

A total of $3.7 million went into Bitcoin short funds, and 78% of those outflows came from investments tied to bitcoin. The company attributed the increasing outflows on the regulatory crackdown.

We think this is because, compared to the broader market, ETP investors are less enthusiastic about recent regulatory challenges in the US.

The broader markets, which witnessed a 10% rise for the time period, did not, however, reflect the negative attitude among institutional investors. According to Butterfill, this increased the total assets under management for institutional products to $30 million, the highest level since August 2022.

Ethereum and mixed-asset funds saw withdrawals as well, although blockchain equities defied the trend with inflows of $9.6 million for the week. Inflows into crypto funds from institutions resumed in January, reaching a six-month high of $117 million in the final week of the month.Yet, after four weeks of inflows in January, there have been outflows of capital over the previous two weeks.

The SEC’s allegations against Kraken for its staking services on February 9 are among the regulatory enforcement actions that are to blame for the shift in opinion. A few days later, it filed a lawsuit against Paxos about the creation of Binance USD (BUSD), and last week, it also put forth changes aimed at cryptocurrency companies acting as custodians.


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