Bitcoin ETF Analysis: Over Half of Investments Linked to Arbitrage

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by Giorgi Kostiuk

2 years ago

Since the launch of Bitcoin ETFs in the US in January 2024, there has been significant interest in these financial products, with most investments linked to short-term arbitrage strategies.

Arbitrage Strategies Dominate Bitcoin ETF Inflows

According to 10x Research, only 44% of the $38.6 billion invested in Bitcoin ETFs are real long-term investments. The remaining 56% is associated with arbitrage strategies, particularly the carry trade, where traders buy Bitcoin through ETFs and sell futures. This allows them to profit from the price difference between spot and futures markets.

Declining Arbitrage Appeal Triggers Outflows

The narrowing of funding rates and basis spreads has made arbitrage less appealing, leading to reduced inflows into Bitcoin ETFs and significant outflows recorded in the past month. Despite this, the spot price of Bitcoin has remained stable.

Changing Market Dynamics Post-Election

Following the US elections, there has been an increase in genuine Bitcoin buying activity. However, plummeting funding rates and declining retail trading volumes continue to challenge the market. Meanwhile, interest from traditional financial institutions in Bitcoin ETFs remains evident.

Research indicates that despite the large volume of Bitcoin ETFs, the share of long-term investments is limited, highlighting the significance of arbitrage strategies in the current market.

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