Crypto Funds Saw Year's Highest Inflows as Terra Crisis Crashed Markets

Digital-asset funds last week netted their highest inflows since late 2021 as investors bought into market panic caused by Terra's implosion.

Crypto funds racked up $274 million in inflows in the week through May 13, when the terraUSD stablecoin (UST) – a cryptocurrency that's supposed to trade at a fixed price of $1 – dropped to a few cents, wiping out most of its $18 billion market capitalization and also making the blockchain's native token LUNA, once a top-10 cryptocurrency, virtually worthless.

James Butterfill, head of research at CoinShares, said it was a "strong signal that investors saw the recent UST stablecoin depeg and its associated broad sell-off as a buying opportunity."

Bitcoin-focused funds were the clear winners, netting $299 million in inflows, the highest weekly inflow since the last week of October 2021. The data suggests that "investors were flocking to the relative safety of the largest digital asset," Butterfill said.

The flurry of investment came as bitcoin (BTC) dipped to as low as $25,892 on Thursday amid fears Luna Foundation Guard, the organization that was supposed to support UST in a crisis, might panic-sell its reserve of roughly 80,000 bitcoin. The price of bitcoin recovered most if its losses late last week to change hands around $30,000, a significant psychological level.

Investors were polarized geographically because funds listed in North American saw $312 million of inflows, while $32 million flowed out of European funds.

Purpose, the provider of the largest bitcoin exchange-traded fund listed in Canada, booked $284 million in inflows, dwarfing flows of competitors.

Non-bitcoin funds struggled in the market sell-off, as some $26.7 million flowed out of funds managing ether (ETH), while vehicles focused on solana (SOL) recorded $5 million of outflows.

Investors in blockchain-related stocks apparently panicked, with some $51 million leaving funds that manage blockchain and crypto-focused equities.

In contrast, multi-asset funds, which manage more than one cryptocurrency, recorded $8.6 million in inflows, suggesting that some investors preferred a diversified approach.