Since the launch of the U.S. Bitcoin spot exchange-traded fund (ETF) in January 2024, it has attracted approximately $39 billion in net inflows. However, according to digital asset research firm 10x Research, only $17.5 billion (44%) of this amount represents genuine long-term buying interest.
Markus Thielen, the founder and head of research at 10x Research, pointed out in a report released last Sunday that the majority of the inflows into the Bitcoin ETF (about 56%) are “likely related to arbitrage strategies.” He referred to the carry trade, where traders buy Bitcoin spot through these ETFs while simultaneously shorting Bitcoin futures, profiting from the price differential between the spot and futures markets.
Thielen indicated that this suggests the actual demand for Bitcoin as a long-term asset in a multi-asset portfolio is “far lower than portrayed by the media.” He wrote:
Thielen further noted that the largest holders of the IBIT fund (the Bitcoin spot ETF issued by BlackRock) are hedge funds and trading firms, which “focus on exploiting market inefficiencies and capturing yield spreads,” rather than directly taking on directional risks.
Institutional Liquidation
Thielen stated that due to the currently low funding rates and basis trade yields, which cannot support new arbitrage positions, “hedge funds and trading firms have stopped adding inflows to the Bitcoin ETF and are actively liquidating existing positions,” as these positions no longer offer the profitable arbitrage opportunities that existed a few months ago.
According to data from Farside Investors, the U.S. Bitcoin spot ETF recorded net outflows for four consecutive trading days last week, totaling $5.52 billion. Meanwhile, the Bitcoin spot price continued to consolidate within a range. Thielen remarked, “This will hurt market sentiment, as media reports typically interpret these outflows as bearish signals.”
He added that this liquidation process is “actually market-neutral, as it involves selling the ETF while simultaneously buying Bitcoin futures, effectively offsetting any directional market impact.”
However, market trends may be shifting. Thielen noted that since the U.S. presidential election, genuine buying interest “has indeed picked up.” He wrote:
Therefore, as funding rates decline, the attractiveness of arbitrage strategies weakens, leading trading firms to begin liquidating positions, which is precisely what has been observed in the market over the past week.