Ben Strack

<div id="highlights-block_62b9d8fd7721c" class="highlights">
 <ul>
 <li>Assets in bitcoin-related offerings stand at $24.5 billion, the lowest since the beginning of 2021</li>
 <li>Purpose Investments accounted for $490 million of the bitcoin outflows last week</li>
 </ul>
 
</div>



Net outflows from bitcoin investment products totaled $453 million amid the ongoing crypto market sell-off, CoinShares revealed in the firm’s <a href="https://blog.coinshares.com/volume-86-digital-asset-fund-flows-weekly-report-10b238f6e1ef" target="_blank" rel="noreferrer noopener">weekly report</a>, erasing almost all year-to-date inflows in the category.&nbsp;



Assets under management in these bitcoin-related offerings stand at $24.5 billion, the lowest point since the beginning of 2021.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="680" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg" alt="" class="wp-image-23423" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=387 387w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=393 393w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=330 330w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Net-flows-by-asset-e1656352276362-1024x680.jpg?w=1386 1386w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Net flows by asset | Source: Bloomberg, CoinShares</figcaption></figure>



The outflows come as the price of bitcoin was $20,800 on Monday at noon ET — down about 27% from a month ago and down 70% from bitcoin’s all-time high last November.&nbsp;



Canadian fund provider Purpose Investments accounted for $490 million of bleeding, CoinShares data shows.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="580" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg" alt="" class="wp-image-23424" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=461 461w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=387 387w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Flows-by-provider-1024x580.jpg?w=1424 1424w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Net flows by provider | Source: Bloomberg, CoinShares</figcaption></figure>



Purpose Investments launched the world’s first ETF backed by physically settled bitcoin in February 2021 on the Toronto Stock Exchange. <a href="https://www.purposeinvest.com/funds/purpose-bitcoin-etf" target="_blank" rel="noreferrer noopener">The fund</a>, which gathered $1 billion in assets during its first month, now has roughly $640 million in assets.



&#8220;The outflows from last week were larger than previous weeks, however it’s normal course of operations,” Vlad Tasevski, Purpose Investments’ chief operating officer and head of product, told Blockworks in an email. “In fact, the key highlight is that the ETF was able to process that large size of outflows without any issue and without impacting the market.”



Other investors seek returns by betting against crypto: Products that short bitcoin notched net inflows of $15 million due to the launch of the first such product <a href="https://cms.blockworks.co/proshares-to-launch-first-us-etf-thats-bearish-on-bitcoin/" target="_blank" rel="noreferrer noopener">launching in the US last week</a>. The ProShares Bitcoin Short Strategy ETF (BITI) — designed to deliver the inverse performance of the S&amp;P CME Bitcoin Futures Index — traded more than 870,000 shares, or $35 million of value, on its second day of trading.



The bitcoin-related outflows drove the $423 million in net outflows across the broader crypto market, which was the largest figure on record by a wide margin, CoinShares Head of Research James Butterfill wrote in a blog post. The previous record had been $198 million of outflows, set in January.



The total outflows from crypto-related products last week was the third largest in terms of its total relative to assets under management — representing 1.2% of assets. The crypto bear market of February 2018 resulted in a week in which outflows accounted for 1.6% of assets.



“Historically, massive outflows such as this have marked turning points in sentiment, although as in 2018&#8217;s case, the inflows were slow to recover,” Butterfill told Blockworks. “Interestingly, we have recently begun to see outflows in short-bitcoin investment products, suggesting investors are becoming less bearish.”



Outside of bitcoin-related investment vehicles, ether products had $11 million of inflows last week, breaking a streak of 11 straight weeks of outflows.



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Bitcoin Investment Products Endured $453M of Outflows Last Week

<div id="highlights-block_615cb6332c02c" class="highlights">
 <ul>
 <li>42% of respondants said they are most bullish about Ethereum, compared to 18% for bitcoin, investments into the two crypto assets are nearly equal, the report finds</li>
 <li>About 35% of investors see their investments into digital assets as mainly a speculative one, while 25% see it as a diversification tool</li>
 </ul>
 
</div>



More fund managers see greater potential in Ethereum than bitcoin, according to a <a href="https://coinshares.com/research/digital-asset-survey">CoinShares report of survey data</a> published Tuesday, despite the total value locked in Ethereum decreasing this year amid more competition in the layer-1 space.



Forty-two percent of investors see Ethereum as having the most compelling growth outlook, compared to bitcoin at 18%, the survey found. The findings come as market share of Ethereum investment products has risen from 11% at the beginning of the year to 26%.



“The conversations we were having two years ago were bitcoin and crypto is a joke,” CoinShares Investment Strategist James Butterfill — who authored the report — told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">”A year ago it was, OK, bitcoin’s a really interesting concept, tell me more. And this year the trend I’m seeing amongst investors is, I want to look at the altcoin space, I want to diversify, I want to see what else is out there.”&nbsp;</blockquote>



The first report of its kind by CoinShares — with data as of September 15 — reflected the views of fund managers representing more than $400 billion in assets under management. Buterfill plans to publish a survey with the same questions every two months.



Despite survey respondents’ bullish feelings about ether, roughly the same percentage of fund managers reported investing in bitcoin. While the two largest cryptocurrencies by market capitalization remain at the core of digital asset investment portfolios, allocations to Cardano and Polkadot are increasing.



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="733" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg" alt="" class="wp-image-8971" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=359 359w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=365 365w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=306 306w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Most-compelling-asset-1024x733.jpg?w=1512 1512w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /></figure></div>



Jan van Eck, CEO of fund manager VanEck, said during a virtual panel last week that the big development for crypto in 2021 was ether’s performance and the Ethereum network’s upgrade from proof-of-work to proof-of-stake.



“People understand that a lot of the blockchain applications are built on top of this smart contract software” he explained.



Competition in the layer-1 space <a href="https://cms.blockworks.co/competition-in-layer-1-space-continues-to-heat-up/" target="_blank" rel="noreferrer noopener">has heated up</a> in recent months amid a growing demand for lower transaction fees and greater throughput than what the proof-of-work Ethereum network currently provides.&nbsp;



Ethereum’s TVL dominance has dropped from 98.22% on Jan. 1 to 68.78%, as of Monday, according to <a href="http://defillama.com/" target="_blank" rel="noreferrer noopener">defillama.com</a>.&nbsp;



Buterfill said he was surprised that less than 5% of respondents labeled Solana (SOL) as having the most compelling growth outlook, but expects to see that number grow in future surveys. The coin has the seventh-largest market capitalization at about $48 billion, according to <a href="https://www.coingecko.com/en" target="_blank" rel="noreferrer noopener">CoinGecko</a>, and its price was up about 19% over the past seven days, as of 3:30 p.m. ET.&nbsp;



“Though not technically as quick as something like Solana, they like Ethereum because it’s much bigger and more decentralized essentially,” the CoinShares strategist said about some investors.&nbsp;



Brian Brooks, former CEO of Binance.US, noted in the same panel as Van Eck that while layer-1 competitors will battle Ethereum to be the smart contract platform king, bitcoin will remain as a coin crypto investors allocate to.&nbsp;



“Bitcoin is really the tracking stock of decentralization overall,” Brooks explained. “It is the relatively price-stable energy-based replacement for gold, and that’s always going to be there for a bunch of reasons.”



<h3 class="wp-block-heading">Who is embracing digital assets and why?</h3>



Respondents who have digital assets in their portfolio were mixed on whether they thought inflation was permanent or transitory, suggesting that some do not invest in crypto as a hedge against inflation, the report indicates.&nbsp;



About 35% of investors see their investments into digital assets as mainly a speculative one, while 25% see it as a diversification tool, it found.



“What it implies is that people are buying without looking at any fundamentals, and I don’t think that’s necessarily the case,” Buterfill said. “Maybe it reflects that investors still don’t fully understand the asset class, but they know there’s a lot of hype around it, and they want to be a part of that. It is a complex asset class to understand.”



The report revealed stark contrasts in allocations to digital assets from different types of investors.&nbsp;



While family offices have the highest allocation to crypto at 23%, retail and institutional investors remain hesitant, with surveyed wealth managers allocating just 0.1% to digital assets.



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="715" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg" alt="" class="wp-image-8972" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=368 368w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=374 374w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=314 314w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/CoinShares-Chart-Portfolio-Positioning-1024x715.jpg?w=1530 1530w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /></figure></div>



Of the survey respondents who said they had not invested in crypto, 21% said regulation was the main reason, while 19% cited corporate restrictions.



Politics, government bans and regulation make up 58% of the perceived key risks for digital assets. Nearly 15% reported volatility as a key risk.



“I think it’s right for investors to be concerned,” Buterfill said. “It’s a known unknown. You can’t stick the regulators’ mindset into a spreadsheet and figure out what’s going to happen, so it’s just a case of sitting and waiting and seeing.”



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