Recent analyses reveal that a large portion of capital flowing into Bitcoin exchange-traded funds (ETFs) is driven by arbitrage strategies rather than retail investments. Raoul Pal, CEO of Real Vision, noted this trend, emphasizing that two-thirds of net inflows are linked to arbitrage trading, particularly by institutional investors.

Institutional Involvement in Bitcoin ETFs

Pal highlighted that institutional players, such as hedge funds, dominate the Bitcoin spot ETF market. Data from Tom Dauvley at MV Capital shows that the top 80 holders, mostly hedge funds, manage about $10.26 billion of the total $15.42 billion in net inflows, indicating significant market influence. Millennium Management is the largest single holder, investing across multiple ETF issuers including Bitwise, Grayscale, Fidelity, BlackRock, ARK, and 21Shares.

Arbitrage and Market Impact

Arbitrage in ETFs involves exploiting price discrepancies between the ETF’s net asset value and the underlying Bitcoin price. Pal argues that this strategy is a primary driver of recent inflows. However, some market participants, like crypto trader Joseph B., suggest that arbitrage may account for less than 15% of total flows when considering the broader US Bitcoin ETF market, which manages over $42 billion in assets.

Bitcoin ETF Landscape

Currently, Bitcoin is priced at $69,523, up 3.5% following a CPI report indicating slowing inflation in the US. Before this price increase, US spot Bitcoin ETFs experienced significant net outflows, with $200 million withdrawn on Tuesday, continuing a pattern from earlier in the week.

Grayscale’s Bitcoin Trust saw the highest withdrawals of around $121 million, while Ark Invest’s ARKB had $56 million in net outflows. Bitwise’s BTC ETF (BITB) experienced a $12 million exit, and smaller outflows were noted from Fidelity and VanEck. BlackRock’s IBIT did not report any net flows that day.

The streak of continuous net inflows into the 11 US spot Bitcoin ETFs ended on Monday after 19 days, resulting in nearly $65 million in outflows. Since their launch in January, these ETFs have collectively amassed net inflows totaling $15.42 billion.