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Ruholamin Haqshanas
Author
Ruholamin Haqshanas
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A significant portion of inflows into U.S. spot Bitcoin exchange-traded funds (ETFs) is driven by short-term trading strategies rather than long-term investments, according to a report by 10x Research.
Since the launch of spot Bitcoin ETFs in January 2024, the products have attracted approximately $39 billion in net inflows.
However, just $17.5 billion—around 44%—of that reflects genuine long-term buying, said Markus Thielen, head of research at 10x Research.
Arbitrage Dominates Inflows: 56% Driven by Carry Trade Strategies
The majority of the inflows, about 56%, are linked to arbitrage strategies, particularly the “carry trade.”
This approach involves investors buying spot Bitcoin through ETFs while simultaneously shorting Bitcoin futures to profit from price discrepancies between the two markets.
“This indicates that the actual demand for Bitcoin as a long-term asset in multi-asset portfolios is significantly smaller than media reports suggest,” Thielen explained.
Instead of representing broad institutional adoption, much of the Bitcoin ETF activity is driven by funding rates and short-term opportunities.
Thielen noted that hedge funds and trading firms are the largest holders of BlackRock’s IBIT ETF.
These entities focus on capturing market inefficiencies rather than taking directional bets on Bitcoin’s price movement.
However, with funding rates and basis spreads now too low to sustain profitable arbitrage, many trading firms have stopped adding new inflows into Bitcoin ETFs.
Over the past week, these firms began unwinding their positions, contributing to four consecutive days of outflows totaling $552 million, according to data from Farside Investors.
Despite the outflows, Bitcoin’s price has remained relatively stable, with Thielen emphasizing that the selling of ETFs is offset by simultaneous futures purchases, making the overall market impact neutral.
Real Vision CEO Raoul Pal echoed similar sentiments earlier this year, estimating that about two-thirds of spot Bitcoin ETF inflows stem from arbitrage trades rather than long-term holdings.
Post-Election Surge: Long-Only Bitcoin Purchases on the Rise
Thielen did note a shift in recent buying behavior, with long-only Bitcoin purchases increasing following the U.S. presidential election.
“While genuine long-term buying has picked up, the decline in retail trading volumes has led to collapsing funding rates,” he said.
As arbitrage opportunities dwindle, trading firms have started to pull back, contributing to the recent wave of ETF outflows.
Just recently, asset management firm 21Shares officially filed with the U.S. Securities and Exchange Commission (SEC) to introduce a spot Polkadot ETF.
The filing comes at a pivotal time for the SEC and cryptocurrency ETFs, following the resignation of SEC Chair Gary Gensler on Jan. 20.
Gensler, known for his cautious stance on crypto regulations, stepped down amid increasing pressure for greater regulatory clarity in the digital asset space.
Likewise, Tuttle Capital Management filed applications for ten cryptocurrency-based leveraged ETFs, including funds tied to popular meme coins.
Analysts suggest the filings are part of a broader strategy to test the boundaries of an SEC under Trump-era crypto-friendly regulators.
Furthermore, Osprey Funds and REX Shares have filed for meme coin ETFs covering Dogecoin (DOGE), Official Trump ($TRUMP), and Bonk (BONK) on Jan. 21.
