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Shorts decimated, crypto funds see record outflows amid banking concerns
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(Kitco News) - The reaction to last week's sudden wave of banking collapses led to a surge of fear across the market, which pushed crypto investors to exit positions en masse in an attempt to avoid a third major contagion event in less than a year.
According to data provided by asset manager CoinShares, digital asset funds experienced $255 million worth of outflows last week, a drawdown equal to 1% of the total assets under management (AUM) and the fifth consecutive week of net outflows.
James Butterfill, head of research at CoinShares, said that this is the largest weekly outflow on record. “Regionally, the negative sentiment was broad, with negative sentiment seen in both North America and Europe,” he said.
In total, AuM fell by 10% over last week, retracing back to levels seen at the beginning of 2023, Butterfill said. “The outflows have also wiped out all the inflows seen this year.”
Flows by asset (US$m)
Bitcoin took the brunt of the losses on account of the fact that it is the largest digital asset, with outflows totaling $244 million last week. Short-bitcoin also saw outflows totaling $1.2 million.
“While the outflows are the largest on record, they aren’t when expressed as a percentage of total AuM, that record was in May 2019 when US$51m of outflows were seen,” Butterfill wrote. “It highlights just how much total AuM has risen since May 2019 (816%).”
The country responsible for the lion's share of the outflows experienced both last week and year to date is Canada as it has been one of the most active jurisdictions when it comes to launching digital asset-related funds.
Flows by exchange country (US$m)
Sentiment rises, shorts get demolished
The U.S. government’s decision to backstop deposits at both Silicon Valley Bank (SIVB) and Signature Bank has led to a turnaround in sentiment, with many now anticipating a move higher in prices.
Data provided by Alternative shows that the Crypto Fear & Greed Index briefly plunged back into “Fear” over the weekend but has since climbed back into neutral territory amid the crypto rally on Monday.
Crypto Fear & Greed Index. Source: Alternative.me
As markets plunged into fear, traders used the opportunity to open short positions with the expectation that matters would continue to deteriorate over the weekend and into Monday as the banking contagion spread and investors exited the market.
Unfortunately for short sellers, the U.S. Federal Reserve stepped in and announced that it would be covering the deposits at both SIVB and Signature Bank, which led to a resurgence in crypto prices.
As a result of the turnaround, data provided by Coinglass shows that more than $311 million worth of short positions were liquidated across all crypto markets on Saturday and Sunday.
Total liqluidations. Source: Coinglass
The liquidations continued Monday, with the latest Coinglass data indicating that a total of 89,121 traders have had their positions liquidated in the past 24 hours, with the amount liquidated totaling $367.28 million.
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