Bitcoin ETFs Face Record Outflow as Investors Flee

U.S.-listed spot Bitcoin exchange-traded funds (ETFs) experienced a record daily outflow of over $930 million on Tuesday, as investors withdrew funds en masse. This significant redemption marked the largest single-day outflow since the funds began trading in January 2024.

The crypto market faced a challenging day, with Bitcoin (BTC) dropping to three-month lows below $87,000 and dragging the broader market down. The 11 spot ETFs registered a cumulative net outflow of $937.78 million, with Fidelity's FBTC seeing the most significant outflow at $344.65 million, followed by BlackRock's IBIT with $164.37 million in redemptions. The remaining funds registered outflows of less than $100 million each.

The weakening appetite for these ETFs can be attributed to the decline in the premium in the CME-listed Bitcoin futures, which has diminished the appeal of the cash and carry arbitrage strategy. This strategy, heavily favored by institutions since early last year, involves buying the spot ETF and simultaneously selling the CME futures to pocket the premium while bypassing price direction risks.

According to Velo Data, the annualized one-month basis (premium) in the CME Bitcoin futures dropped to 4% on Tuesday, the lowest in nearly two years, and down significantly from almost 15% in December. The yield available on the cash and carry strategy has declined dramatically in two months. The basis in ether futures has also declined sharply to around 5%, leading to a total outflow of $50 million for spot ether ETFs listed in the U.S.

The U.S. 10-year Treasury note, offering a yield of 4.32% at press time, has become an attractive alternative to these carry trades, contributing to the shift in investor sentiment. As a result, U.S.-listed Bitcoin ETFs have witnessed a significant outflow, reflecting the changing dynamics in the crypto market and the broader financial landscape.