$55 million flowed out of digital asset funds amid crypto market sell-off

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(Kitco News) – Digital asset investment products saw $55 million worth of outflows during the week ending August 18 as the crypto market experienced its most significant pullback since March, with Bitcoin’s (BTC) price dropping 12% on Thursday to hit a two-month low of $25,240.

“We believe this is in reaction to recent media highlighting that a decision by the US Securities and Exchange Commission in allowing a US spot-based ETF is not imminent,” said James Butterfill, Head of Research at CoinShares. “Market volumes remain well below average, primarily due to seasonal effects, leaving prices vulnerable to large trades.”

Butterfill noted that last week’s market panic and rapid sell-off resulted in a 10% decline in total assets under management (AuM), which now sits at $32.3 billion.

Digital asset ETP net new assets. Source: CoinShares

Outflows were witnessed in a majority of jurisdictions tracked, with Canada accounting for the bulk of redemptions as $35.9 million flowed out of these products, followed by $11 million worth of outflows from German ETPs.

Flows by exchange country. Source: CoinShares

Switzerland was one of two countries to record inflows, with $3.5 million invested into products listed in the country, while Australia accounted for $100,000 worth of inflows.

Bitcoin was the primary focus of investors with outflows totaling $42 million, which erased the inflows recorded last week, and short Bitcoin products experienced their 17th consecutive week of outflows with $2.2 million exiting these ETPs.

Flows by asset. Source: CoinShares

Ether (ETH) products saw $9 million worth of outflows, while Polygon (MATIC), Litecoin (LTC) and Polkadot (DOT) saw outflows of $0.9 million, $0.6 million and $0.5 million, respectively.

Butterfill noted that “blockchain equities” were also affected by the negative sentiment and saw $6 million worth of outflows last week.

Crypto derivatives traders were especially hard hit by last week’s sell-off as data from Coinglass shows that a total of $855.22 million worth of longs were liquidated on Thursday, along with $194.198 million worth of shorts, bringing the total to nearly $1.05 billion worth of liquidations.

Total liquidations chart. Source: CoinGlass

As for what sparked the sell-off, Butterfill pointed to the decision by the SEC to delay its decision on a spot BTC ETF as a possible cause, but data shows that the move to the downside also correlated with a sell-off in the bond market as yields on the 10-year and 2-year U.S. government bonds climbed to their highest levels in years.

BTC/USD vs. US10Y vs. US2Y 1-day chart. Source: TradingView

Historically, higher bond yields have led to lower prices for risk assets as investors opt to take advantage of the low-risk returns offered by bonds amid increasing economic headwinds.

And according to blockchain data provider Glassnode, the Bitcoin futures markets experienced “negative dislocation due to the forced selling,” which drove “futures prices well below the spot market index.”

Bitcoin: Futures perpetual funding rate. Source: Glassnode

“Funding rates went negative to create an incentive for market makers to open long positions and arbitrage price differentials,” Glassnode said. “This is the deepest negative funding rate since the March sell-off to $19.8k, although the dislocation last week is smaller in magnitude. In general, this suggests that the leverage build-up and subsequent deleveraging in futures markets was a primary factor driving this sell-off.”