In the wake of the regulatory crackdown in the United States, institutional investors may have gotten nervous about cryptocurrencies. As a result, digital asset investment products had the highest weekly outflow of any asset class in 2023.

Institutional cryptocurrency fund manager CoinShares said on Feb. 20 that digital asset investment products saw withdrawals of $32 million last week, the biggest outflow of the year. This was the biggest departure since the beginning of the year.

The exit follows a massive crackdown on the digital asset industry in the United States, which has targeted everything from staking services to stablecoins and cryptocurrency custody, as the Securities and Exchange Commission steps up what the industry analysts have dubbed their “war on cryptocurrency.” The SEC has targeted everything from staking services to stablecoins to cryptocurrency custody as what they have dubbed their “war on cryptocurrency” escalates.

According to CoinShares analyst James Butterfill, outflows peaked at $62 million in the middle of the previous week, but fell by the end of the week as confidence returned.

The vast majority of these withdrawals, or 78%, were made from investment instruments connected to Bitcoin (BTC), while Bitcoin short funds received a $3.7 million injection during this period. The company blamed increased scrutiny from regulators for the rising outflows.

We believe this is because ETP investors have a more pessimistic outlook on recent US regulatory pressures compared to investors in the broader market.

Despite this, the overall market had a 10% gain during the time period in question, which does not reflect the pessimistic outlook expressed by institutional investors. Butterfill said that as a result of this, total assets under management for institutional products reached $30 million, which is the highest level since August.

However, blockchain stocks reversed the trend with inflows totaling $9.6 million for the week. Ethereum (ETH) and mixed asset funds also saw capital withdrawals during the same time period.

In January, institutional investors resumed their practice of investing in cryptocurrency funds, with total inflows of $117 million for the last week of the month, marking a new six-month record.

However, there has been a withdrawal of funds for the past two weeks, following a four-week period in January when there were deposits.

The change in attitude could be attributed to a regulatory compliance action that occurred on February 9, when the SEC filed charges against Kraken for the staking services it provided. A few days later, he filed a lawsuit against Paxos over the Binance USD (BUSD) minting, and just a week earlier he suggested reforms that would affect cryptocurrency companies that operate as custodians.