- Over half of the US Bitcoin ETF inflows are driven by short-term arbitrage strategies, indicating limited long-term investor interest.
- Declining funding rates have reduced arbitrage opportunities, leading to $552 billion in outflows from Bitcoin ETFs.
Despite attracting nearly $39 billion in net inflows since their January 2024 debut, US-spot Bitcoin ETFs show limited long-term investor commitment. A new report from 10x Research indicates that less than half of these inflows represent genuine long-only purchases.
#Bitcoin & @MicroStrategy: The New Favorite Assets for Hedge Funds@BlackRock IBIT, MicroStrategy – what we know …
👇1-21) Although Bitcoin ETFs have attracted $38.6 billion in net inflows since their January 2024 launch, our analysis suggests that only $17.5 billion (44%)… pic.twitter.com/7Bf95P9NpX
— 10x Research (@10x_Research) February 23, 2025
Instead, the majority stems from short-term arbitrage strategies, raising questions about the true demand for Bitcoin as a long-term asset. Market sentiment has been impacted by recent outflows and unwinding positions, reflecting evolving investor behavior.
Arbitrage Strategies Dominate Bitcoin ETF Inflows
According to 10x Research, approximately $17.5 billion, or 44% of the $38.6 billion in net inflows into US spot Bitcoin ETFs, represents real long-term investments. The remaining 56% is attributed to arbitrage strategies, primarily the carry trade. Markus Thielen, head of research at 10x Research, explained that these strategies involve buying spot Bitcoin through ETFs while simultaneously shorting Bitcoin futures. This allows traders to profit from the price difference between spot and futures markets.
Thielen emphasized that this trading behavior suggests a “significantly smaller” demand for Bitcoin as a long-term asset than the media portrays. He stated that investor activity in Bitcoin ETFs is driven mainly by funding rates and basis rate opportunities, not by a broad-based institutional push toward long-term holdings. Notably, hedge funds and trading firms are the largest holders of products like BlackRock’s IBIT ETF, focusing on yield spreads rather than directional market exposure.
Declining Arbitrage Appeal Triggers Outflows
As funding rates and basis spreads have narrowed, the appeal of arbitrage has diminished. Thielen noted that many hedge funds and trading organizations have stopped adding new inflows to Bitcoin ETFs. Instead, they are unwinding positions that no longer yield the profitable opportunities seen earlier in 2024.
This shift has led to notable outflows. Data from Farside Investors recorded four consecutive days of outflows last week, totaling $552 billion. Despite these outflows, spot Bitcoin prices remained stable, hovering between $94,000 and $100,000 over the past three weeks. Thielen clarified that these outflows are “market-neutral” because selling ETFs is offset by simultaneous purchases of Bitcoin futures, mitigating any direct market impact.
Raoul Pal, CEO of Real Vision, echoed similar views, estimating that two-thirds of spot Bitcoin ETF inflows could stem from arbitrage activities. These findings underscore how short-term trading strategies, rather than long-term investments, have largely driven the surge in Bitcoin ETF volumes.
Changing Market Dynamics Post-Election
While arbitrage-driven inflows have declined, Thielen observed a recent uptick in genuine Bitcoin purchases following the US presidential election. Since former President Donald Trump’s election win, long-only buying activity has improved, though it remains overshadowed by earlier arbitrage trends.
However, plummeting funding rates and declining retail trading volumes have continued to challenge the market. Thielen stated that these factors have rendered arbitrage trades less attractive, prompting further position unwinding among hedge funds. This has contributed to the observed market stability, with Bitcoin trading near $95,600 as of Monday.
Meanwhile, institutional interest in Bitcoin ETFs remains evident. Goldman Sachs increased its Bitcoin ETF holdings to $2.05 billion, with a significant $1.27 billion invested in BlackRock’s iShares Bitcoin Trust. This move, which Goldman’s Chief Investment Officer described as a “paradigm shift,” highlights traditional financial institutions’ growing recognition of digital assets despite broader market trends favoring short-term strategies.
