Crypto Fund Flows Dropped From $9.1B to $433M — But Beat 2018 Levels

Net flows into digital asset investment products in 2022 hit their lowest levels since 2018, though the total remained positive despite steep declines in crypto prices.

Inflows into crypto products were $433 million last year — down from $9.1 billion in 2021 and $6.6 billion in 2020, according to CoinShares. The 2022 flow total was nearly double the level seen during a tumultuous 2018, a bear market year that saw $233 million enter digital asset products.

Though total weekly outflows at one point reached 1.8% of total assets under management in 2018, outflows in 2022 never rose above 0.7% of total assets in the space.

“In a year where bitcoin prices fell by 63%, a clear bear market precipitated by irrational exuberance and an overly hawkish Fed, it is encouraging to see investors on the whole still choosing to invest, and in many cases tactically adding to positions during price weakness,” CoinShares Head of Research James Butterfill said in a Wednesday blog post.

Bitcoin and multi-asset investment products notched inflows of $287 million and $209 million in 2022, respectively.

The SEC has yet to approve a spot bitcoin ETF in the US. Industry participants said in November the collapse of crypto exchange FTX makes the chance of the regulator greenlighting one any time soon even more slim.

Products shorting crypto emerged during the year, gathering $108 million of net inflows. The ProShares Short Bitcoin Strategy ETF (BITI), which began trading in the US in June, has about $100 million in assets under management, according to ETF.com. Still, the category represents just 1.1% of total assets under management in bitcoin products.

Institutions expected to wait for Ethereum staking withdrawals

The largest outflows came from Ethereum products, which leaked $402 million. These negative flows came during a year in which the blockchain moved to a proof-of-stake consensus.

“Ethereum had a tumultuous year which we believe was due to investor concerns over a successful transition to proof of stake and continued issues over the timing of un-staking, which we believe will occur in Q2 2023,” Butterfill said.

Ethereum moving to proof of stake completely changes the investment case for ether, industry participants have said.

But some institutional investors are likely to wait for Ethereum’s Shanghai upgrade, which is expected to enable staking withdrawals.

Staked ether withdrawals are expected to come as soon as March.

Falling outside the scope of the report, ETFs investing in companies related to the crypto industry had a rough year.

While several so-called blockchain ETFs beat the performance of bitcoin in 2022, plenty did not. As such funds are often tied to crypto prices, some industry watchers said, many of the offerings have an uncertain future.

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