Digital Asset Funds See $32M Outflows Amid U.S. Crypto Crackdown

Digital asset investment funds saw $32 million in net outflows last week amid a flurry of aggressive regulatory actions from U.S. authorities.

According to a recent report by CoinShares, the $32 million in outflows marks the largest withdrawal from crypto funds since late December 2022. 

It is worth noting that the outflows reached a record $62 million mid-week. However, more inflows came as sentiment improved by the end of the week and crypto prices resumed their uptrend. 

“The negative sentiment amongst ETP investors was not expressed in the broader market with Bitcoin prices rising by 10% over the week,” the report said, adding that the rally sent total assets under management (AuM) to $30 billion, their highest level since August 2022.

Bitcoin-tied investment funds witnessed the largest amount of withdrawals, seeing nearly $25 million of outflows. On the other hand, short-bitcoin investment products saw inflows of $3.7 million, with inflows YTD totaling $38 million. 

Bitcoin funds saw $116 million in inflows in the last week of January as the flagship cryptocurrency managed to hold onto its gains. Year-to-date, Bitcoin products have seen net inflows of $158 million, becoming the biggest gainer of the year. 

Meanwhile, other major altcoins like Ethereum, Cosmos, Polygon, and Avalanche saw outflows of $7.2 million, $1.6 million, $0.8 million, and $0.5 million, respectively. On the other hand, Aave, Fantom, XRP, BNB, and Decentraland all saw minor inflows ranging from $0.36 million to $0.26 million. 

“Blockchain equities saw inflows totaling US$9.6m last week and have seen 6 consecutive weeks of inflows highlighting a more constructive sentiment amongst investors,” the report stated. 

In terms of geography, Germany, and Canada accounted for the bulk major of the negative sentiment last week, withdrawing $23.1 million and $10.6 million worth of funds, respectively. On the flip side, the only notable inflows were seen in Switzerland at $4.9 million.

U.S. Crackdown on Crypto Intensifies

According to CoinShares, the outflows are attributed to increasing regulatory pressure in the U.S. “We believe this is due to ETP investors being less optimistic on recent regulatory pressures in the US relative to the broader market,” the report said.

Last week, the New York Department of Financial Services (DFS) ordered Paxos, a crypto firm that issues Binance’s stablecoin Binance USD (BUSD), to stop minting BUSD. Subsequently, it was revealed that the SEC plans to sue the company over its BUSD issuance. The agency argued that BUSD is considered an unregistered security.

The SEC also reached an agreement with crypto exchange Kraken to stop offering staking services or programs to clients in the country and pay $30 million to settle allegations that failed “to register the offer and sale of their cryptoasset staking-as-a-service program,” which the commission qualified as securities.