The surge in Bitcoin exchange-traded funds (ETFs) in the United States captured headlines, but a new report from 10x Research suggests that long-term investment demand may be significantly overstated. According to Markus Thielen, head of research at 10x Research, only 44% of inflows into spot Bitcoin ETFs represent genuine long-term holding, while the majority—56%—is linked to arbitrage strategies.
Bitcoin ETFs: A Vehicle for Arbitrage?
Since their launch in January 2024, spot Bitcoin ETFs have amassed approximately $39 billion in net inflows. However, 10x Research reports that only $17.5 billion of this amount is attributed to long-only investments. The rest is likely tied to arbitrage, where traders capitalize on differences between spot and futures prices.
The dominant strategy, known as the carry trade, involves buying spot Bitcoin through ETFs while simultaneously shorting Bitcoin futures. This allows investors to exploit funding rates and market inefficiencies, rather than making a direct long-term bet on Bitcoin’s price appreciation.
Institutional Adoption vs. Speculative Trading
Despite the narrative of broad institutional adoption, Thielen argues that many of the largest ETF holders, including hedge funds and proprietary trading firms, are focused on short-term yield opportunities. BlackRock’s IBIT ETF, one of the most prominent Bitcoin ETFs, is reportedly dominated by firms that specialize in capturing price spreads rather than taking on directional market risk.
However, the landscape is shifting. With funding rates and basis spreads currently too low to sustain profitable arbitrage, trading firms are unwinding their positions. Last week, Bitcoin ETFs saw four consecutive days of outflows totaling $552 million, according to Farside Investors. These outflows, while often perceived as bearish, are actually market-neutral since traders exit ETFs while simultaneously covering their short positions in Bitcoin futures.
Real Demand Picking Up?
While arbitrage-driven inflows may be declining, Thielen notes that genuine long-term buying has increased following the U.S. presidential election. Market observers believe that with reduced retail trading volumes and collapsing funding rates, speculative trading strategies may fade, paving the way for more sustained institutional investment.
The evolving dynamics of Bitcoin ETFs suggest that while arbitrage has played a significant role, long-term demand for Bitcoin may still be in its early stages. Whether this translates to broader institutional adoption remains to be seen.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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