The launch of Bitcoin Exchange-Traded Funds (ETFs) in the United States in January 2024 marked a historic milestone in the evolution of digital assets. Since then, billions of dollars have poured into these regulated investment products, signaling growing institutional interest and mainstream adoption. However, new insights from 10x Research reveal a surprising truth: only 44% of the capital flowing into U.S. Bitcoin ETFs is being used for long-term investment.
The remaining majority—over half of all inflows—is being deployed not to hold Bitcoin (BTC) as a store of value, but rather to execute short-term arbitrage strategies that exploit pricing inefficiencies between spot and futures markets.
This data challenges the widely held narrative that Bitcoin ETFs are primarily a vehicle for long-term wealth preservation or institutional adoption. Instead, it highlights the sophisticated trading dynamics shaping the early stages of this financial innovation.
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The Reality Behind Bitcoin ETF Inflows
According to Markus Thielen, Head of Research at 10x Research, approximately $39 billion** has flowed into U.S. spot Bitcoin ETFs since their debut. Of this total, only about **$17.5 billion represents genuine long-only, buy-and-hold investment behavior—what many consider “true” demand for Bitcoin.
The remaining $21.5 billion, or roughly 56%, has been channeled into arbitrage-driven strategies. These include carry trades where investors simultaneously buy shares in a Bitcoin ETF while shorting Bitcoin futures contracts to capture the basis spread—the price difference between spot and futures markets.
"While Bitcoin ETFs are often celebrated as a symbol of institutional adoption, much of the activity is actually driven by hedge funds and trading firms looking for risk-free returns, not long-term conviction in BTC," explains Thielen.
This means that a significant portion of ETF trading volume isn’t reflective of organic demand for Bitcoin itself, but rather of technical market opportunities created by the structure of derivatives markets.
Why Arbitrage Dominates Early ETF Activity
Bitcoin ETFs provide a regulated, accessible gateway to BTC exposure without requiring direct custody. For sophisticated players like hedge funds and proprietary trading firms, this creates an ideal environment for executing basis trading strategies:
- Buy BTC via ETF (spot exposure)
- Short BTC futures contracts
- Profit from positive funding rates and contango (when futures trade above spot prices)
As long as funding rates remain favorable and volatility is contained, these trades offer low-risk returns with minimal directional exposure to Bitcoin’s price movement.
However, when market conditions shift—such as narrowing basis spreads or declining funding rates—these strategies become less profitable. As a result, traders unwind their positions, leading to temporary outflows from ETFs.
Hedging vs. Holding: Who Really Owns the BTC?
The largest holders of major Bitcoin ETFs—such as BlackRock’s IBIT—are not retail investors or pension funds buying for retirement portfolios. Instead, they are market-neutral trading desks and hedge funds focused on extracting alpha from market inefficiencies.
These entities aren’t betting on Bitcoin’s long-term appreciation. Their goal is to generate consistent returns regardless of whether BTC goes up or down—by hedging out price risk entirely.
This distinction is crucial:
When these players sell ETF shares, it doesn't necessarily mean they're bearish on Bitcoin. In fact, they often buy equivalent BTC futures contracts at the same time, effectively transferring their exposure from spot to derivatives markets.
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Thus, ETF outflows driven by arbitrage unwinds should not be interpreted as net selling pressure on Bitcoin itself. The underlying asset remains held—just in a different form.
Recent Outflows: Cause for Concern?
Data from Farside Investors shows that U.S. Bitcoin ETFs experienced four consecutive days of outflows totaling $552 million in late February 2025. At first glance, this might suggest weakening investor appetite.
But Thielen emphasizes that this trend is largely neutral for the broader market. The outflows were primarily driven by arbitrageurs exiting positions due to:
- Declining retail trading volume
- Lower funding rates in futures markets
- Reduced basis opportunities
Since these exits were offset by corresponding purchases in the futures market, there was no net reduction in overall BTC exposure. Therefore, the impact on spot prices was negligible.
Post-Election Optimism and Signs of Recovery
Despite short-term volatility in flows, Thielen notes a positive shift following the U.S. presidential election cycle. There are early signs that long-term buying interest is resurging, particularly from institutional investors seeking portfolio diversification.
“We’re seeing renewed momentum in true demand,” says Thielen. “The post-election environment appears to be stabilizing sentiment and encouraging more strategic, long-horizon allocations.”
If this trend continues, it could mark a turning point where ETF inflows increasingly reflect genuine belief in Bitcoin’s value proposition—not just arbitrage mechanics.
Frequently Asked Questions (FAQ)
What percentage of Bitcoin ETF investments are long-term?
Approximately 44% of inflows into U.S. spot Bitcoin ETFs represent long-term, buy-and-hold investment behavior. The remaining 56% is used for short-term arbitrage strategies.
Why do traders use Bitcoin ETFs for arbitrage?
Traders exploit the price difference (basis) between spot ETFs and Bitcoin futures. By buying ETF shares and shorting futures, they can earn risk-adjusted returns when funding rates are favorable.
Do ETF outflows mean people are selling Bitcoin?
Not necessarily. Many outflows come from arbitrageurs who hedge their positions by buying futures contracts simultaneously. This shifts exposure rather than removing it from the market.
Who are the biggest buyers of Bitcoin ETFs?
The largest holders are hedge funds and trading firms, not retail or traditional asset managers. These entities prioritize market-neutral strategies over directional bets on BTC.
Will long-term investment in Bitcoin ETFs increase?
Early indicators suggest yes. After political uncertainty subsided post-election, long-term inflows have shown signs of recovery, pointing to growing confidence in Bitcoin as a strategic asset.
How does funding rate affect ETF demand?
High funding rates make carry trades more profitable, boosting short-term ETF demand. When rates drop, arbitrageurs reduce positions, leading to temporary outflows—even if sentiment remains bullish.
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Final Thoughts: Beyond the Hype
While the launch of Bitcoin ETFs was hailed as a watershed moment for crypto adoption, the reality is more nuanced. Much of the initial capital surge was driven not by conviction in Bitcoin’s future, but by technical trading opportunities.
However, this doesn’t diminish the product’s significance. Arbitrage activity brings liquidity and efficiency to new markets. Over time, as these opportunities shrink due to market maturity, we’re likely to see a higher proportion of inflows shift toward genuine long-term investment.
For observers and investors alike, understanding the difference between speculative mechanics and real demand is key to interpreting market signals accurately.
As regulatory clarity improves and institutional frameworks strengthen, Bitcoin ETFs may yet fulfill their promise as a cornerstone of modern digital asset portfolios—not just a tool for traders, but a trusted vehicle for lasting wealth preservation.
Core Keywords:
Bitcoin ETF, long-term investment, arbitrage strategy, spot Bitcoin ETF, funding rate, basis trade, institutional adoption, BTC futures