Massive Outflows Hit Bitcoin ETFs in the US as Interest in Futures Arbitrage Wanes
The cryptocurrency market experienced a bleak day on Tuesday, with Bitcoin falling below $87,000 for the first time in three months. But beyond this correction, another figure stood out: US-listed Bitcoin ETFs recorded massive net outflows, reaching a record $937.78 million in a single day. This rout is explained by the loss of appeal for futures arbitrage strategies.
A Capital Flight Hitting Fidelity and BlackRock
All 11 active Bitcoin ETFs were affected by these outflows, but some more than others. Fidelity (FBTC) saw the largest outflow, with $344.65 million withdrawn, followed closely by BlackRock (IBIT) with $164.37 million outflows. The other funds each experienced withdrawals below $100 million.
This massive disengagement is largely due to the drop in the premium on Bitcoin futures contracts listed on the Chicago Mercantile Exchange (CME), reducing the interest in cash and carry type strategies.
An Arbitrage Strategy Becoming Less Profitable
The cash and carry strategy, favored by institutional investors, involves buying the Spot ETF and simultaneously selling a futures contract on the CME to capture the price difference while neutralizing directional risk. This approach worked well as long as the premium of the futures contracts remained high, but it has collapsed.
According to Velo Data, the one-month annualized basis for CME Bitcoin futures contracts has fallen to 4%, a level not seen in nearly two years, compared to 15% in December. In other words, the potential return of this strategy has been nearly divided by four in just two months.
Meanwhile, the yield on the 10-year US Treasury Note has stabilized around 4.32%, making these arbitrage opportunities significantly less attractive compared to US government bonds. Faced with this lack of profitability, many institutional investors have chosen to liquidate their positions in Bitcoin ETFs.
Ethereum Also Affected
This phenomenon is not limited to Bitcoin. US-listed Ethereum ETFs have also experienced net outflows, although more modest, with $50 million withdrawn in a single day. The basis on ETH futures contracts has also dropped, reaching around 5%, further reducing the interest in arbitrage on this asset.
