Bitcoin ETFs Face Record $937M Outflow as Arbitrage Strategy Falters

Bitcoin ETFs experienced a record $937 million outflow on Feb. 25, marking the largest single-day redemption in their history since launching in January 2024. This significant sell-off surpassed the previous record of over $671 million in December and continued a trend of over $2 billion in outflows during the last six trading days.

Fidelity’s FBTC saw the largest redemptions, with $344.7 million pulled from the fund, while BlackRock’s IBIT followed closely with $164.4 million in outflows. Other funds, such as Bitwise’s BITB, Grayscale’s Mini Bitcoin Trust, Franklin Templeton’s EZBC, and Grayscale’s GBTC, also experienced substantial redemptions, ranging from $66.1 million to $88.3 million.

Analysts attributed the withdrawals to the breakdown of a popular arbitrage strategy known as the basis trade. This strategy involves profiting from price differences between Bitcoin’s spot market and futures contracts. Traders typically buy Bitcoin ETFs while simultaneously shorting futures contracts on exchanges like CME. However, if futures premiums shrink, traders face losses and may be forced to exit their positions, triggering the massive ETF outflows in recent days.

As the Bitcoin market continues to evolve, investors and traders must adapt their strategies to changing market conditions. The recent outflows from Bitcoin ETFs highlight the importance of understanding the underlying dynamics of the market and the potential risks associated with various trading strategies.