Institutional investors are massively withdrawing crypto funds as the SEC targets more and more aspects of the crypto industry in the US, making it harder for crypto trading platforms to provide custody, minting and staking services
On Feb. 20, the institutional crypto fund manager CoinShares reported the largest weekly outflow of digital asset investment products, totalling $32 million. Outflows even hit $62 million midway through the reported period but slowed by the end of the week as market sentiment improved.
The majority of those outflows (78%), were from Bitcoin-related investment products, although there was also an inflow of $3.7 million to the Bitcoin short fund recorded. There were also outflows for Ethereum and mixed-asset funds. However, blockchain equities reversed the trend with inflows totalling $9.6 million for the week.
This market trend might be connected to the expected regulatory crackdown in the United States crypto industry. As we have previously reported, the panel of the United States Securities Exchange Commission (SEC) has introduced a proposal to enhance the role of qualified asset custodians, expanding the scope of the “2009 Custody Rule” to cryptocurrencies.
The controversial move would make many platforms that store customers’ digital assets today face stricter regulations and requirements. The majority of them won’t qualify at all, leaving customer assets subject to self-provided storage.
Besides, SEC is also targeting crypto staking services which are a backbone of the industry profitability. Thus, cryptocurrency exchange Kraken has recently agreed to immediately end its U.S. crypto staking operations to settle SEC charges.
A few days ago rumours arouse that SEC is preparing to take action against Paxos over the minting of Binance USD (BUSD). The stablecoin issuer has already been targeted by New York State’s Department of Financial Services (NYDFS), ordering Paxos to cease minting BUSD. Net outflows at Binance hit $788 million within 24 hours after the event.