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- Only 44% of U.S. spot Bitcoin ETF holdings are long-term investments, with most inflows driven by arbitrage strategies rather than institutional adoption.
- Bitcoin ETFs saw $552M in outflows as hedge funds scaled back arbitrage trades amid shrinking yield spreads.
- Despite uncertainty, BlackRock’s Bitcoin ETF holds $56.8B in assets, controlling over 50% of the market.
The narrative around Bitcoin’s long-term investment appeal is being challenged as fresh data suggests that a significant portion of spot Bitcoin ETF inflows are driven by short-term arbitrage strategies rather than true institutional adoption. Markus Thielen, CEO of 10x Research, has cast doubt on the media’s portrayal of Bitcoin ETFs as a major gateway for long-term investment.
Thielen revealed that out of the $39 billion that has flowed into U.S. spot Bitcoin ETFs since their launch in January 2024, only $17.5 billion represents actual long-term holdings. This means that more than half roughly 56% of the inflows were used for arbitrage trading rather than as strategic investments in Bitcoin as a store of value.
Arbitrage strategies involve traders taking advantage of price discrepancies between spot Bitcoin and futures contracts. Thielen highlighted that many institutional investors engage in a “carry trade” strategy buying spot Bitcoin via ETFs while simultaneously shorting Bitcoin futures. This approach allows traders to profit from small price differences between the spot and futures markets rather than making a directional bet on Bitcoin’s price movement.
Bitcoin ETFs Lose $552M as Hedge Funds Shift
One of the biggest takeaways from Thielen’s research is that the largest holders of BlackRock’s iShares Bitcoin Trust (IBIT) ETF are not traditional long-term investors but hedge funds and trading firms. These entities specialize in capturing market inefficiencies rather than betting on Bitcoin’s price appreciation.
Furthermore, with funding rates and yield spreads shrinking, hedge funds appear to be reducing their arbitrage positions, leading to decreased inflows into Bitcoin ETFs. This shift has resulted in four consecutive trading days of outflows last week, with $552 million withdrawn from Bitcoin ETFs, according to data from Fairside Investors.
Recent data suggests that Bitcoin ETFs are facing sustained selling pressure. SoSoValue reported that U.S. spot Bitcoin ETFs recorded over $500 million in outflows for the second consecutive week, totaling $599.41 million in net withdrawals. The negative trend, which began on February 6, has now resulted in $1.1 billion in net outflows, making February the worst month for Bitcoin ETF withdrawals since their inception.
Between February 18 and 21, outflows surged as investors withdrew significant amounts. February 18 saw $60.63 million in withdrawals, followed by $70.07 million on February 19. The highest single-day outflow in February occurred on February 20, reaching $364.93 million, with an additional $62.77 million pulled out on February 21.
Bitcoin ETF Giant Holds $56.8B Amid Uncertainty
While media reports often interpret ETF outflows as bearish, Thielen argues that the reality is more complex. He suggests that the unwinding of arbitrage positions is market-neutral, as traders selling ETFs simultaneously purchase Bitcoin futures, offsetting any downward pressure on BTC prices.
Crypto trading platform Bitget revealed that BlackRock’s Bitcoin ETF still dominates the market, controlling over 50% of all U.S. Bitcoin ETF holdings with $56.8 billion in assets under management. However, the shift away from arbitrage-based flows could indicate that institutional demand for Bitcoin as a long-term asset is weaker than previously believed.
As Bitcoin hovers around key price levels, all eyes are now on whether ETF outflows will continue, potentially signaling a broader shift in sentiment or merely reflecting changes in trading strategies.
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