Billions Invested in Bitcoin ETFs as Prices Surge 34%

Over the past few weeks, billions of dollars have been invested in U.S.-listed spot bitcoin exchange-traded funds (ETFs), as the cryptocurrency experienced a significant recovery rally from $75,000 to $100,000. This surge in investment is primarily driven by bold, strategic bullish directional bets rather than market-neutral arbitrage plays, according to data analysis.

The 11 spot ETFs attracted $2.97 billion in investor funds in April, with an additional $2.64 billion flowing in so far this month. This has increased the net inflow since the inception in January 2024 to over $41 billion. Historically, institutions have used these ETFs to set up non-directional arbitrage plays, profiting from price discrepancies between futures and spot bitcoin markets. This strategy, known as cash and carry arbitrage, involves buying ETFs while simultaneously selling CME futures to capitalize on the futures premium, bypassing price direction risks.

However, the recent inflows since early April appear to be driven by bullish directional bets rather than arbitrage plays. This is evident in the Commitment of Traders (COT) report published weekly by the Commodities Futures Trading Commission (CFTC). The data indicates that leveraged funds, including hedge funds and various types of money managers, have reduced their net shorts from 17,141 contracts in early April to 14,139 contracts. If carry trades had primarily driven the net inflows, the number of shorts would have increased.

Imran Lakha, founder of Options Insight, noted in a blog post published on Deribit that "CFTC data shows leveraged funds didn't significantly increase short positions, indicating most flows were directional bets, not arbitrage." This shift suggests that large players are increasingly using ETFs to express a clear market outlook on bitcoin's future direction. At the time of press, bitcoin was trading at $102,700, according to CoinDesk data.