**Short-Term Strategies Drive US Bitcoin ETF Inflows, Raising Questions About Long-Term Interest**
A significant portion of the inflows into US Bitcoin ETFs—over half—can be attributed to short-term arbitrage strategies, suggesting that long-term investor interest may be limited. As funding rates have declined, the opportunities for arbitrage have also diminished, resulting in a staggering $552 billion in outflows from Bitcoin ETFs. While these ETFs have garnered nearly $39 billion in net inflows since their launch in January 2024, a recent report from 10x Research reveals that less than half of these inflows represent true long-term investments.
According to 10x Research, only about $17.5 billion, or 44% of the total $38.6 billion in net inflows into US spot Bitcoin ETFs, reflects genuine long-term buying. The remaining 56% is largely driven by arbitrage strategies, particularly the carry trade. Markus Thielen, head of research at 10x Research, explained that these strategies involve purchasing spot Bitcoin through ETFs while simultaneously shorting Bitcoin futures, allowing traders to capitalize on the price discrepancies between the two markets. Thielen pointed out that this trading behavior indicates a “significantly smaller” demand for Bitcoin as a long-term asset than what is often portrayed in the media. He noted that the activity surrounding Bitcoin ETFs is primarily influenced by funding rates and basis rate opportunities, rather than a widespread institutional shift toward long-term holdings.
Interestingly, hedge funds and trading firms are the primary holders of products like BlackRock’s IBIT ETF, focusing more on yield spreads than on directional market exposure.
As funding rates and basis spreads have tightened, the allure of arbitrage has waned. Thielen observed that many hedge funds and trading organizations have ceased adding new inflows to Bitcoin ETFs and are instead unwinding positions that no longer offer the profitable opportunities seen earlier in 2024. This change has led to significant outflows, with data from Farside Investors showing four consecutive days of outflows last week, totaling $552 billion. Despite these outflows, spot Bitcoin prices have remained relatively stable, fluctuating between $94,000 and $100,000 over the past three weeks. Thielen clarified that these outflows are “market-neutral,” as the sale of ETFs is balanced by simultaneous purchases of Bitcoin futures, which helps to mitigate any direct market impact.
