Crypto Funds Shrink to Lowest Since 2021 Summer Bear Market

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Crypto fund assets under management fell to the lowest since July 2021 last week because of the recent price crash in cryptocurrencies and equity markets that has been partly driven by the U.S. Federal Reserve's move to reduce its balance sheet starting next month.

CoinShares reported the value of assets under management held by digital-asset funds dropped to $38 billion, as investors pulled out some $143 million during the week through May 20. It was the year's second-largest outflow.

"Confidence in crypto has been flailing given both retail and institutional investors that got into crypto over the past year are deeply in the red," said Edward Moya, senior market analyst at the trading platform Oanda.

It was a wild swing from the mood just two weeks ago, when investors inflows rose to a 2022 high, apparently buying the market dip amid the implosion of the Terra blockchain's LUNA token and its UST stablecoin.

Bitcoin (BTC), the largest cryptocurrency crashed to as low as $25,892 on the week of May 9, the lowest since December 2020. Since then, bitcoin has recovered somewhat and stabilized around the $30,000 level. As of press time it was changing hands around $30,223.

Investors diversify from bitcoin

Bitcoin-focused funds suffered the lion's share of the outflows, with $154 million in outflows last week, shedding about the half of the $299 million inflows netted during the prior week.

Funds managed by Purpose, a fund provider that manages the largest bitcoin exchange-traded fund in North America, saw $150 million in outflows.

Some $154 million flowed out of North American crypto funds, while the funds listed in Europe brought in $12 million.

On a positive note, multi-asset funds – funds that hold multiple cryptocurrencies – stacked up $9.7 million in inflows last week. These types funds might be winners from the volatility in crypto markets as investors look to diversify their holdings, with $185 million in inflows since the start of the year.

"We believe investors see multi-asset investments products as safer relative to single-line investment products during volatile periods," James Butterfill, CoinShares head of research, said in a note.

Funds that focus on altcoins – other cryptocurrencies beyond bitcoin – didn't see significant flows in any direction. Funds involving Polkadot's DOT and Cardano's ADA were the biggest gainers, with $1 million in inflows each.