The initial excitement surrounding Bitcoin spot ETFs in the United States may be masking a more nuanced reality. While these investment vehicles have attracted approximately $39 billion in net inflows since their launch in January 2024, analysis reveals that a significant portion of these flows are related to arbitrage strategies, not long-term purchases. This finding challenges the perception of massive institutional adoption of Bitcoin and raises questions about the sustainability of demand for these products.
Bitcoin ETFs: Arbitrage Stronger Than Long-Term Investment?
According to a study by 10x Research, only 44% of net flows into Bitcoin spot ETFs represent long-term purchases, or approximately $17.5 billion of the total $39 billion. The remaining 56% is believed to be related to arbitrage strategies, including carry trades. This strategy involves buying Bitcoin spot through ETFs while simultaneously shorting Bitcoin futures contracts, in order to profit from the price difference between the spot market and the futures market. Hedge funds and trading firms are the main players in these arbitrage strategies, which allow them to capture returns without taking significant directional risks.
Markus Thielen, Head of Research at 10x Research, points out that the real demand for Bitcoin as a long-term asset in multi-asset portfolios is “significantly lower than the media suggests.” He explains that Bitcoin ETF flows are primarily driven by funding rates and arbitrage opportunities, not by a long-term conviction in Bitcoin’s potential.
Towards True Long-Term Adoption: What Role for Trump?
The current situation has consequences for market sentiment, as outflows from Bitcoin ETFs are often interpreted as bearish signals by the media. However, Thielen clarifies that this divestment process is actually “neutral to the market,” as it involves selling ETFs while simultaneously buying Bitcoin futures, offsetting any directional impact. Analyst Raoul Pal previously made a similar observation, estimating that about two-thirds of net flows into Bitcoin ETFs could come from arbitrage.
Despite this dominance of arbitrage, there are some signals that the dynamics may be changing. Thielen notes that actual buying flows “have certainly increased” since the US presidential election. The election of Donald Trump could therefore act as a catalyst for broader adoption of Bitcoin as a long-term asset. However, he points out that funding rates have fallen due to lower retail trading volumes, making arbitrage strategies less attractive and prompting trading firms to liquidate their positions.
