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(Bloomberg) — The cryptoverse has seen what seems like a lifetime of ups and downs already this year, yet activity in products linked to the industry have been nearly nonexistent, with analysts saying that investors have abandoned the sector without plans to come back anytime soon.

Nearly $172 million exited from global exchange-traded products tracking everything from Bitcoin to Cardano in the first six months of 2023 amid an industry wide rally, following outflows of just $37 million in 2022. That compares to record cash inflows of nearly $10 billion in 2021 and $6.7 billion in 2020, Bloomberg data show.

It’s another signal of investors having fallen out of love with the once-high-flying sector, where prices are — despite a more-than 50% resurgence this year for Bitcoin — still way below their 2021 peaks. A large chunk of the investor base — one that was excited during the pandemic years — has turned out to be fleeting: many, scorched by last year’s slew of scams and company collapses, are still nursing those wounds. 

“Crypto doesn’t have the same mass appeal that it did during 2020 and 2021,” said Roxanna Islam, associate director of research and head of sector and industry research at VettaFi. “Investors who were previously burned by lower prices and market volatility may have already left the market late last year, and with Bitcoin prices hovering under $30,000 for the past few months, there hasn’t been enough excitement to attract new investors.” 

Crypto has been, since last year’s cave-in of a number of industry titans, including the FTX exchange, undergoing a drastic transformation. Regulators have cracked down, accusing popular platforms of running illegally. Prices are still in the gutter — as of Monday, Bitcoin was trading around $25,800, or 60% below its 2021 all-time high of near-$69,000. That’s after a 56% rally this year. 

In this environment, crypto trading volumes have also plunged, meaning that any price swings can look more pronounced thanks to thin trading. Spot volumes in May saw the lowest monthly reading since March 2019, according to CCData. 

“It’s not like the end of the world, and it’s not happy season either,” said CoinShares International’s Chief Executive Officer Jean-Marie Mognetti in an interview. “But it’s just an environment where there a lot of unknowns and a lot of people are trying to read what’s happening in general from a markets perspective and what it means for their investments.” 

Aggressive tightening campaigns by the Federal Reserve and other global central banks have engendered an environment that’s been less favorable for riskier assets like crypto. Bitcoin hasn’t acted as an inflation hedge and has a choppy record of holding up well during times of market turbulence, even as many proponents argued it would. On top of that, the US Securities and Exchange Commission has severely cracked down on the industry and major exchanges. 

The year’s five top-performing non-leveraged equity ETFs are all crypto-focused, Bloomberg data show. That includes the Valkyrie Bitcoin Miners ETF (ticker WGMI) and the VanEck Digital Transformation ETF (DAPP), which as of the start of the week were each up more than 100%, and the Bitwise Crypto Industry Innovators ETF (BITQ), which had gained roughly 97%. The Global X Blockchain ETF (BKCH) and the Invesco Alerian Galaxy Crypto Economy ETF (SATO) have both advanced more than 80%. 

But those five funds have attracted less than $10 million so far this year. Meanwhile, global crypto-ETP trading volume sank to $4.9 billion in May, down from a peak of more than $27 billion in October 2021 ahead of the first US-listed Bitcoin-futures ETF. While part of that drawdown is due to falling prices, investors are also simply trading less, according to Bloomberg Intelligence.

“There is simply less interest in crypto. Part of it is that it’s fallen out of favor,” said BI ETF analyst James Seyffart. “But also, crypto has a PR problem at this point. There has been a ton of old-school, classic fraud in the space, alleged and proven. From a vibes perspective, it feels like crypto has lost its shine, particularly as AI has become the new big shiny thing.”

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