Crypto's War Reaction Reveals a Continental Divide

Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s issue, Emily Nicolle parses crypto fund flows:

Going with the flow

Digital-asset investors across Europe were selling in the period leading up to Russia’s invasion of Ukraine and in the days that followed, while those in North America continued to plow into crypto, according to fund flows. Even in an ostensibly borderless market like crypto, geography may still matter.

Crypto-related investment products in Europe racked up seven-day outflows of $24 million by March 4, while funds in the U.S. and Canada had inflows of $151 million. Though these are small amounts in the wider context of exchange-traded products generally, aggregated data provided to Bloomberg by fund provider CoinShares showed crypto outflows in Europe had been steadily building since mid-February, suggesting nervousness was rising before Russia’s invasion began on Feb. 24. 

Why is the reaction so different in each continent? Investors in Europe are much closer to the action in Ukraine and likely more affected by import and export sanctions against Russia. If they view Bitcoin as a risky buy, they might be less inclined to maintain their positions while the rest of their portfolios are in turmoil.

But there may be more to it than that. For one, the European crypto ETP market is a lot more mature than that of Canada or the U.S., the latter of which only gained access to such products late last year with the approval of the first ETFs tied to Bitcoin futures.

Most of these ETPs, whether in Europe or the U.S., are skewed toward retail investors, and products at the older end of the scale – which allowed investors to partake in crypto’s huge gains in recent years — are recording more outflows despite being competitively priced with newcomers, CoinShares found.

It makes sense that Europeans might decide to cash in on their winnings, while Americans who joined the fray only recently might be more inclined to add to positions. “It’s partly the vintage,” said James Butterfill, head of research at CoinShares. “If you’ve only been in a product for six months or less, the idea of taking profit is not viable.” For fund managers, on this occasion it seems being late to the game had its advantages.

Editor’s note: Keep up with the latest news on Russia’s invasion of Ukraine by signing up to a special daily brief. 

Charting it out

Hearing them out

As Bitcoin's price lingers well below last year's record high, some of the cryptocurrency's more vocal advocates are expounding on its virtues

“Bitcoin is the only monetary asset ever, in the history of life”

Jack Mallers

Founder and CEO of Bitcoin money-transfer startup Zap Solutions, operator of the Strike app

What we’re reading (and writing)

• Bitcoin mining ETF expects shakeout from Energy Surge
• Reality Intrudes on a Utopian Crypto Vision (New York Times)
• It’s Weird That Bitcoin Isn’t Doing Better These Days
• Coinbase to Label Some Assets as `Experimental’ in Bid to Boost Transparency (CoinDesk) 
• Biden to Sign Crypto Order as Firms Face Sanctions Pressure 
• Ukraine Goes Crypto on War Bonds. It Can Do More: Trung Phan (Bloomberg Opinion)

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— With assistance by Brody Ford, and Vildana Hajric