A staggering $32 million has been lost due to the enforcement of regulations, resulting in a decrease in investment and a decrease in the value of cryptocurrencies.
Institutional investors are feeling the pressure as the U.S. Securities and Exchange Commission (SEC) intensifies its scrutiny of the cryptocurrency industry.
The SEC is taking a comprehensive approach to regulating the sector, leaving no stone unturned in its efforts to ensure that investors are protected. This heightened regulatory oversight has caused some unease among institutional investors, who are now having to navigate a more complex landscape.
Institutional investors may have become apprehensive about crypto following the regulatory crackdown in the United States, with digital asset investment products experiencing the largest weekly outflow of the year on Feb. 20.
According to CoinShares, a leading institutional crypto fund manager, digital asset investment products saw outflows totaling $32 million last week. This marks the most significant outflow of the year, indicating a potential shift in investor sentiment.
The recent outflow of $62 million from digital asset investment products in the United States is a direct result of the Securities and Exchange Commission's (SEC) intensified efforts to regulate the crypto industry. This 'war on crypto' has targeted a wide range of services, from staking to stablecoins to crypto custody.
CoinShares analyst James Butterfill noted that the outflows slowed by the end of the week as sentiment improved. The majority of these outflows, 78%, were from Bitcoin-related products, while there was an inflow of $3.7 million to Bitcoin short funds. Butterfill attributed the outflows to the regulatory crackdown, saying,
“We believe this is due to ETP investors being less optimistic on recent regulatory pressures in the US relative to the broader market.”
Despite the negative sentiment from institutional investors, the broader markets saw a 10% gain for the period, pushing total assets under management for institutional products to $30 million, the highest level since August 2022, according to Butterfill. Ethereum and mixed-asset funds experienced outflows, but blockchain equities defied the trend with inflows totalling $9.6 million for the week.
Institutions began to invest heavily in crypto funds in January, with inflows for the last week of the month reaching a six-month high of $117 million. However, the past two weeks have seen outflows, following four weeks of inflows in January.
The regulatory enforcement action responsible for the sentiment shift includes the SEC’s charges against Kraken for its staking services on Feb. 9, as well as its lawsuit against Paxos over the minting of Binance USD (BUSD). Last week, the SEC also proposed changes targeted at crypto firms operating as custodians.
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