Since its launch in January 2024, the US Bitcoin Spot Exchange Traded Fund (ETF) has attracted a net inflow of approximately $39 billion. However, according to 10x Research, a digital asset research firm, only $17.5 billion (44%) of this amount belongs to true long-term buying.

Markus Thielen, founder and research leader of 10x Research, stated in a report released last Sunday that the majority of funds flowing into Bitcoin ETFs (about 56%) are "likely related to arbitrage strategies," referring to the carry trade, where traders buy Bitcoin spot through these ETFs while shorting Bitcoin futures to profit from the price difference between spot and futures.

Thielen This means that the actual demand for Bitcoin as a medium to long-term asset in a multi asset investment portfolio is' far less than what the media portrays'. He wrote:

The buying and selling behavior of Bitcoin ETFs is mainly driven by funding rates (basis trading opportunities), rather than reflecting widespread institutional adoption. Many investors focus on short-term arbitrage rather than long-term capital appreciation

Thielen added that, IBIT The largest holders of the fund (Bitcoin spot ETF issued by BlackRock) are hedge funds and trading companies, which are "focused on exploiting market inefficiencies and capturing yield spreads" rather than directly bearing directional risks.

Institutional liquidation

Thielen It is stated that due to the current low returns on funding rates and basis trading, it is not possible to support new arbitrage positions. "Hedge funds and trading companies have stopped increasing capital inflows to Bitcoin ETFs and actively closed existing positions," and these positions no longer provide profitable arbitrage opportunities that existed a few months ago.

According to Farside Investors, the US Bitcoin spot ETF recorded net outflows for four consecutive trading days last week, totaling $552 billion. At the same time, the spot price of Bitcoin continues to consolidate within a range. Thielen This will hurt market sentiment, as media reports often interpret these fund outflows as bearish signals

He added that this closing process is actually market neutral, as it involves selling ETFs while buying Bitcoin futures, effectively offsetting any directional market impact.

However, market trends may be shifting. Thielen pointed out that real buying has indeed rebounded since the US presidential election, writing:

"Since the election of Trump, the real long-term bitcoin buying has increased, but at the same time, the capital rate has decreased significantly with the decrease of retail transactions."

Therefore, when the funding rate decreases, the attractiveness of arbitrage strategies weakens, causing trading companies to start closing positions, which is exactly what the market has seen over the past week.

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