Fund managers yank Ethereum holdings over regulatory jitters

The recent data is part of a broader trend. The crypto correction — dubbed the crypto winter — wiped off more than $2tn from the digital asset values in less than 12 months, and regulatory uncertainty over the status of Ethereum has contributed to a faster pace of outflows. Digital asset management firms dumped some $361m of ether in the first three quarters, CoinShares found.

After a big software upgrade, known as the Merge, on 15 September, Securities and Exchange Commission chair Gary Gensler signalled that the digital currency may now qualify as a security, and thus fall under its jurisdiction. Since Gensler’s comments, ether has lost about 20% of its value. The crypto asset is down by more than 70% in the past 11 months, according to data from Coinmarketcap.

“Defining Ethereum as an entity under the supervision of SEC would have huge implications on the market and potentially destroy a big part of the valuation of several similar blockchain protocols in the short term,” Marc P Bernegger, co-founder of Zurich-based crypto fund AltAlpha Digital, told Financial News.

Bernegger added that some investors are waiting for “regulatory clarity” before allocating funds to ether and other cryptocurrency assets. While he said ether is still among funds’ most high-demand cryptocurrencies, its short-term outlook remains gloomy due to the “SEC threat”.

Rocky markets in general haven’t helped — the year has seen almost every asset class reel from the war in Ukraine and rollercoaster energy shocks as well as soaring inflation and rising interest rates.

“The Merge has timed into the macro bearish environment with no interest to crypto, so ETH became a ‘sell-the-news’ for many crypto hedge funds,” Iakov Levin, CEO & founder of Midas.Investments, a custodial crypto investment platform, told Financial News.

The Merge was part of a push to become more ESG-friendly — the Ethereum upgrade has reduced the network’s energy consumption by almost 99.9%, Crypto Carbon Rating Institute’s research report shows.

Some crypto hedge funds have altered their investment strategies amid rising environmental concerns about mining operations. Recently, Modular Asset Management’s crypto hedge fund added tokens such as algorand, polkadot, and cosmos to its portfolio due to their sustainability characteristics, according to Bloomberg.

To contact the author of this story with feedback or news, email Bilal Jafar