According to a crypto research firm, the majority of investors in spot Bitcoin exchange-traded funds (ETFs) have been using the vehicle for arbitrage strategies, with only 44% of inflows tied to long-term investments.
Since their launch in January 2024, spot Bitcoin ETFs in the United States have attracted approximately $39 billion in net inflows. However, according to Markus Thielen, head of research at 10x Research, only $17.5 billion, less than half, represents genuine long-only buying.
Thielen explained that around 56% of the inflows are likely tied to arbitrage strategies, where short Bitcoin futures positions offset the inflows. This refers to the “carry trade” where traders buy spot Bitcoin through ETFs while simultaneously shorting Bitcoin futures and profiting from the price difference between spot and futures prices.
Thielen emphasized that this means the actual demand for Bitcoin as a long-term asset is significantly smaller than what the media portrays. He stated that the buying and selling of Bitcoin ETFs is primarily driven by funding rates and many investors focus on short-term arbitrage rather than long-term capital appreciation.
Thielen also mentioned that the largest holders of BlackRock’s IBIT ETF are hedge funds and trading firms specializing in exploiting market inefficiencies and capturing yield spreads, rather than taking outright directional risk.
Currently, funding rates and basis spreads are too low to justify new arbitrage positions. As a result, hedge funds and trading firms have stopped adding inflows to Bitcoin ETFs and are actively unwinding existing positions.
Last week, there were four consecutive trading days of outflows, with $552 billion leaving the products, according to Farside Investors. Meanwhile, the price of spot Bitcoin remained range-bound for the week.
Thielen stated that media reports often frame these outflows as bearish signals, but the unwinding process is actually market-neutral since it involves selling ETFs while simultaneously buying Bitcoin futures, offsetting any directional market impact.
Real Vision CEO Raoul Pal made a similar claim in mid-2024, suggesting that around two-thirds of the net inflows into spot Bitcoin ETFs may be coming from arbitrage trading.
However, Thielen noted that real buying flows have increased since the US presidential election, but funding rates have collapsed as retail trading volumes have declined. As a result, trading firms are unwinding their positions, which has been observed in the past week.