Spot Bitcoin exchange-traded fund investors have mainly been utilizing the vehicle for arbitrage strategies, having only 44% of inflows associated with long-term investments, as per a crypto research company.

Spot Bitcoin ETFs in the U.S. have captivated about $39 billion in net inflows since their rollout in January last year. Also, just $17.5 billion, less than half, describes authentic long-only purchasing, reported Markus Thielen, 10x Research head of research.
The major part, or about 56% is possibly linked to arbitrage strategies, where short Bitcoin futures place offset inflows, he added, giving reference to the carry trade, where traders purchase spot Bitcoin by ETFs and at the same time lower Bitcoin futures and benefiting from the difference between spot and futures prices.

Thielen said that it means that the real demand for Bitcoin as a long-term asset in multi-asset portfolios is notably smaller than what the media portrays.

Funding rates influence
Instead of mirroring wide-based institutional adoption, the purchasing and selling of Bitcoin ETFs is mainly influenced by funding rates, having the majority of investors aiming on short-term arbitrage instead of long-term capital appreciation.

Thielen further mentioned that the biggest holders of BlackRock’s IBIT ETF are hedge funds and trading companies that specialize in using market inabilities and seizing yield propagates instead of taking entirely directional risk.

Having funding rates and basis spreads recently too low to give grounds for new arbitrage places, hedge funds and trading companies have come to an end adding inflows to Bitcoin ETFs and are actively uncoiled current positions that no longer propose the profitable arbitrage opportunities witnessed a few months ago, he asserted.

Last week witnessed four continuous trading days of outflows, having $552 billion leaving the products, as per Farside Investors. At the same time, spot Bitcoin is still range-bound for the week.

Tides may be relocating
This harms market sentiment, as media reports mainly frame these outflows as bearish signals, mentioned Thielen, who asserted that the uncoiling process is really market-neutral since it consists of selling ETFs when at the same time purchasing Bitcoin futures, successfully offsetting any directional market influence.

The chief executive officer of Real Vision, Raoul Pal said something similar in mid-2024 when he alleged around two-thirds of the net inflows into spot Bitcoin ETFs may be driven by arbitrage trading.

Tides may be relocating, however, Thielen revealed that real purchasing flows have surely picked up since the presidential election of the United States. While really long-only Bitcoin purchasing has ramped up since Trump’s election, funding rates have caved in as retail trading volumes have slumped.