- The majority of Bitcoin ETF inflows stem from short-term arbitrage, not long-term investments.
- Declining Funding Rates trigger outflows, raising concerns over Bitcoin’s rally sustainability.
The introduction of spot Bitcoin [BTC] Exchange Traded Funds (ETFs) has significantly reshaped the crypto landscape, offering investors new avenues for exposure to Bitcoin.
10x Research on the real success of Bitcoin ETFs
However, a recent report by 10x Research reveals that much of the capital flowing into these U.S.-based ETFs is driven by short-term trading tactics rather than long-term investment strategies.
Since their debut in January 2024, these ETFs have amassed around $39 billion in net inflows.
Yet, only $17.5 billion—approximately 44%—reflects genuine long-term interest, according to Markus Thielen, head of research at 10x Research.
The remaining 56% of inflows appear to be fueled by arbitrage strategies, particularly the popular “carry trade”, highlighting a more speculative approach among many participants.
This strategy sees investors purchasing spot Bitcoin through ETFs while simultaneously shorting Bitcoin futures, aiming to capitalize on price differences between the two markets.
What is Thielen trying to explain?
According to Thielen, this trend suggests that the true demand for Bitcoin as a long-term asset within diversified portfolios is far lower than what media narratives often suggest.
He added,
“Rather than reflecting broad-based institutional adoption, the buying and selling of Bitcoin ETFs is primarily driven by funding rates (basis rate opportunities), with many investors focusing on short-term arbitrage rather than long-term capital appreciation.”
Thielen pointed out that hedge funds and trading firms, which dominate holdings in BlackRock’s IBIT ETF, primarily focus on exploiting market inefficiencies and capturing yield spreads rather than taking direct market risks.
However, as Funding Rates and basis spreads have diminished, the profitability of arbitrage strategies has declined, prompting many firms to halt new inflows into Bitcoin ETFs.
What’s more?
Recently, these firms have begun unwinding their positions, leading to four consecutive days of outflows totaling $552 million, according to Farside Investors.
Despite this, Bitcoin’s price has remained relatively stable, as ETF selling has been balanced by simultaneous futures purchases, resulting in a neutral market impact.
However, this trend appears to be shifting.
According to Thielen, genuine buying activity has noticeably increased since the U.S. presidential election, indicating a potential rise in long-term investor interest as market dynamics evolve.
“While genuine long-only Bitcoin buying has increased since Trump’s election, funding rates have collapsed as retail trading volumes have declined.”
Thus, as Funding Rates decline, the appeal of arbitrage strategies has diminished, prompting trading firms to unwind their positions—an ongoing trend observed over the past week.
Bitcoin ETF update
U.S. Bitcoin ETFs, which previously saw robust inflows exceeding 18,000 BTC in early November, are now experiencing net outflows, with a recent decline of 1,000 BTC.
This shift has raised concerns about the sustainability of Bitcoin’s rally and hints at a potential market correction.
That being said, according to Farside Investors, BTC ETFs continue to see outflows, with the latest trading day recording $62.9 million in withdrawals.
Meanwhile, Bitcoin’s price reflects this bearish sentiment, trading at $95,664.12 at press time after a 0.57% dip in the past 24 hours, as reported by CoinMarketCap.
