Crypto Outflows Spike Following U.S. Regulatory Crackdown, Says CoinShares

The crypto space is experiencing increasing tension as United States regulators intensify their regulatory approaches. Some of their recent enforcement actions include a stop order mandate on crypto token issuers, a Wells Notice to some exchanges, a hint of lawsuits, and others.

The heat of the crypto crackdown is gradually creating fear among institutional investors. A recent report by CoinShares reveals that massive digital assets investments are flowing out of the industry.

Total Crypto Outflows Hit The Highest For The Year

According to CoinShares, an institutional crypto fund manager, digital asset outflows hit the highest record for the year last week. The report indicated $32 million as the cumulative outflows from digital asset investment products.

As per the report, digital asset outflows amounted to $62 million by the middle of last week. But by Friday, about $30 million in inflows came due to a slight change in the market sentiment bringing the outflows down to $32 million.

Bitcoin suffered the most with the rising negative sentiment within the digital space. The outflows for the primary digital assets were about $25 million, accounting for almost 78% of the total outflows. However, short Bitcoin investment products recorded a total inflow of $3.7 million within the period. It witnessed a larger YTD (Year-to-date) inflow totaling $38 million.

Regarding the altcoins, the negative sentiment reflected a mixed performance. While some tokens witnessed an overall outflow for the week, some saw more inflows from investors.

Ethereum, Avalanche, Polygon, and Cosmos recorded outflows of $7.2 million, $0.5 million, $0.8 million, and $1.6 million, respectively. But BNB, Ripple (XRP), Fantom, and Aave recorded weekly inflows ranging from $0.36 million to $0.26 million.

Since the beginning of 2023, investors have been more enthusiastic about digital investments. Inflows for the last week of January totaled $117 million, hitting a 6-month high. However, a shift in the market sentiment caused a decline as more funds kept moving out from the industry over the past two weeks.

In its report, CoinShares noted that the negative sentiment among institutional investors did not spread to the broader crypto market. The overall market prices spiked by about 10% within the week. This change triggered a rise in total assets under management (AUM) as the value hit $30 billion, representing its peak since August 2022. 

U.S. Regulatory Crackdown on Digital Assets

The crypto industry is witnessing these huge outflows a due to the U.S. regulatory crackdown on digital assets. The American watchdogs have focused on different aspects of transactions involving crypto tokens. These include stablecoins, staking programs, services, crypto custody, etc. 

The  U.S. Securities and Exchange Commission (SEC) is among the regulators clamping down on the crypto industry with stricter enforcement actions. On February 9, the regulator penalized the Kraken crypto exchange after halting its staking services. 

Also, it slammed Paxos with a lawsuit regarding issuing Binance USD (BUSD) stablecoin. Some industry analysts think the SEC is wedging a war on crypto due to its recent approach to regulation.

Featured image from Pexels and chart from TradingView.com