Since the launch of the Bitcoin spot exchange-traded fund (ETF) in the United States 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.
Markus Thielen, founder and head of research at 10x Research, noted in a report released last Sunday that the majority of the funds flowing into the Bitcoin ETF (about 56%) “are likely related to arbitrage strategies.” He referred to a carry trade, where traders buy Bitcoin spot through these ETFs while simultaneously shorting Bitcoin futures, profiting from the price difference between the spot and futures markets.
Thielen stated that this implies the actual demand for Bitcoin as a long-term asset in a multi-asset portfolio “is far less than what the media portrays.” He wrote:
Thielen added 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 directional risk.
Institutional Deleveraging
Thielen indicated that due to the currently low funding rates and basis trading returns, which cannot support new arbitrage positions, “hedge funds and trading firms have stopped increasing their capital inflows into the Bitcoin ETF and are actively deleveraging their existing positions,” as these positions no longer present 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 price of Bitcoin in the spot market has continued to consolidate within a range. Thielen remarked, “This will hurt market sentiment, as media reports often interpret these fund outflows as bearish signals.”
He added that this deleveraging process “is actually market-neutral, as it involves selling ETFs while buying Bitcoin futures, effectively offsetting any directional market impact.”
However, market trends may be shifting. Thielen pointed out that since the U.S. presidential election, genuine buying interest “has indeed seen a rebound.” He wrote:
Therefore, as funding rates decline, the attractiveness of arbitrage strategies diminishes, leading trading firms to begin deleveraging, which is precisely what the market has witnessed over the past week.
