Ukraine Conflict Raises Investors’ Confidence in Crypto Funds

Global investors have been pouring money into cryptocurrency funds and companies since witnessing how digital assets have been used during the conflict in Ukraine.

Venture capital investments in the crypto space reached roughly $4bn over the last three weeks of Feb, research firm Fundstrat reported in its latest note to clients. According to the data, another $400m flowed into the sectors from VCs in the past week alone.

At the end of last week, new crypto funds had also raised nearly $3bn over the prior two weeks. Fundstrat says that the VC investment has been consistent with broad weekly inflows, which have averaged anywhere between $800m to about $2bn.

“The conflict in Ukraine has weaponized our financial and digital economy and really accelerated blockchain adoption,” said  Paul Hsu, CEO of hybrid fund Decasonic. “We are seeing a re-allocation to crypto and blockchain away from real estate and bond funds, for instance, because of higher interest rates.”

So far, since the onset of the crisis, crypto assets have outperformed traditional higher-risk assets. Since bottoming out at the start of the invasion on Feb 24, Bitcoin and Ethereum have gained 14.5% and 13.5%, respectively, while the S&P 500 rose just 3.2%. 

Crypto funds inflows continue

In the two weeks leading up to March 4, $163m in new institutional money flowed into crypto investment products and funds, according to data from asset manager CoinShares. The weekly report detailed how the inflows of $127m had been the largest seen this year so far. 

However, according to the CoinShares report, digital asset investment products saw outflows for the first time since mid-January last week. The approximately $100m in outflows had also been the largest amount for the past nine weeks. 

The report cited increasing regulatory concern from investors, despite the positive feedback from the crypto industry following President Joe Biden’s executive order on cryptocurrencies last week.