CoinShares' Butterfill suggests 'continued hesitancy' among investors

Published at: Oct. 4, 2022

Minor inflows for digital asset investment products over the last few weeks suggest a “continued hesitancy” towards crypto amongst institutional investors amid a slowdown of the U.S. economy.

In the latest edition of CoinShares’ weekly “Digital Asset Fund Flows” report, Coinshares head of research James Butterfill highlighted stand-offish institutional sentiment towards crypto investment products, which saw "minor inflows" for the third week in a row.

“The flows remain low implying continued hesitancy amongst investors, this is highlighted in investment product trading volumes which were US$886m for the week, the lowest since October 2020.”

Between Sept. 26 and Sept. 30, investment products offering exposure to Bitcoin (BTC) saw the most inflows at just $7.7 million, with Ether (ETH) investment products close behind with $5.6 million worth of inflows. Short BTC products represented the only other notable inflows of $2.1 million.

These inflows were offset by more than $3.5 million worth of outflows for investment products offering exposure to altcoins such as Polygon (MATIC), Avalanche and Cardano (ADA), while multi-asset and Solana funds also shed $700,000 and $400,000 during that week.

Commenting on the current state of the crypto market, and the institutional outlook of late, Markus Thielen, head of research and strategy at Singapore-based crypto financial services platform Matrixport noted that:

“The market is currently in a wait-and-see environment whereas a potential positive shift after the US Mid-Term elections could have significant regulatory changes.”

“Last night’s US economic data, notably the ISM index, showed that growth has materially slowed down in the US economy and there is now the possibility that the Fed will become less hawkish. The USD rally appears to have lost one of its key drivers and this could signal a pause in rate hikes. This could be very bullish for digital assets into year-end,” he added.

Looking at the month-to-date (MTD) flows as of Sept. 30, ETH products have been the most offloaded by institutional investors despite the Merge going through on Sept. 15, with $65.1 million worth of outflows.

“Looking back, the Merge was not good for sentiment with outflows totaling US$65m in September. Increased regulatory scrutiny and a strong US Dollar being the likely culprits as the shift to Proof of Stake was executed successfully,” said Butterfill.

In contrast, Short BTC funds and BTC investment products saw minor inflows of $15.2 million and $3.2 million MTD.

Crypto ETF outflows slowing

While there has been limited action of late for crypto investment products tracked by CoinShares, Bloomberg Intelligence has observed a notable trend in crypto exchange-traded funds (ETFs).

According to Bloomberg Intelligence data, institutional investors offloaded $17.6 million from crypto ETFs during Q3 2022, providing a stark contrast to the “record $683.4 million withdrawn from such funds” in Q2 2022.

“The outflows mainly took place in the past two months. In July, investors poured upwards of $200 million into crypto ETFs,” Bloomberg noted in a Sept. 30 article, adding that the decreased outflows was likely due to “narrow fluctuations” in crypto prices during Q3.