The US spot Bitcoin exchange-traded funds (ETFs) saw their biggest single-day outflow on 25 February, with investors pulling out $1.01 billion in total.
This was the highest amount of money withdrawn from Bitcoin ETFs in a single day, highlighting growing uncertainty among institutional investors.
Out of the 12 Bitcoin ETFs currently trading in the US, ten recorded outflows, showing that many investors were reducing their exposure to Bitcoin.
The two hardest-hit funds were Fidelity’s Wise Origin Bitcoin Fund (FBTC) and BlackRock’s iShares Bitcoin Trust (IBIT). FBTC lost $344.65 million, while IBIT saw an outflow of $164.3 million.
Experts believe that this sudden drop in investment is mainly due to institutional investors closing their basis trades.
This is a trading strategy where investors buy Bitcoin ETFs and short Bitcoin futures on the Chicago Mercantile Exchange (CME) to profit from small differences in price, known as yield spreads.
In the past, these spreads were as high as 10%, making it a profitable trade. However, they have now shrunk to just 4%, reducing the appeal of this strategy.
As a result, hedge funds and institutional investors are exiting their positions, leading to a sharp decline in Bitcoin ETF holdings.
BTC drops below $90k amid economic fears
The large withdrawals from Bitcoin ETFs also coincided with a significant drop in $BTC’s price. On the same day, Bitcoin fell below the $90,000 mark, hitting a low of $88,000.
Market analysts suggest that this decline was caused by multiple factors, including a new policy announcement from US President Donald Trump.
On 24 February, Trump announced a 25% tariff on imports from Canada and Mexico. This decision has increased inflation concerns and added uncertainty to the financial markets.
Higher tariffs often lead to increased costs for businesses and consumers, which can push inflation up. In response, investors tend to shift their money to safer assets, such as US Treasury bonds, instead of high-risk investments like Bitcoin.
Adding to the negative sentiment, the market was also shaken by a major hack involving the Bybit crypto exchange.
The security breach resulted in the loss of over $1.5 billion worth of Ethereum ($ETH), one of the largest exchange hacks in recent history.
Cybersecurity remains a major issue in the crypto space, and large-scale hacks often make investors nervous about holding digital assets.
The Bybit hack, combined with economic uncertainty, has likely pushed many investors to sell their Bitcoin holdings and move their money elsewhere.
Bitcoin ETFs face uncertainty
The record-breaking outflows from Bitcoin ETFs highlight how fragile investor confidence can be in the cryptocurrency market.
While Bitcoin ETFs were introduced to provide a regulated and accessible way for institutions to invest in Bitcoin, their recent struggles show that investors are still cautious.
The ETF that has seen the most significant withdrawals in recent weeks is the Grayscale Bitcoin Trust (GBTC). Since converting into a spot ETF, GBTC has experienced continuous outflows, losing $492 million in a single day on 25 February alone.
One of the reasons for this is its higher management fees compared to competitors like BlackRock and Fidelity. Many investors seem to be moving their funds from GBTC to ETFs with lower fees.
On the other hand, some Bitcoin ETFs, particularly those managed by BlackRock and Fidelity, have been more successful in attracting new investors.
These funds have lower fees and a more efficient structure, making them a preferred choice for institutions.
Some analysts believe that the current outflows are part of a short-term market adjustment rather than a long-term trend. They argue that as soon as the economic situation stabilises, investors may return to Bitcoin ETFs, especially if they believe Bitcoin will gain value over time.
There is also speculation that long-term investors could see the current sell-off as a buying opportunity. When large investors exit their positions, prices tend to drop, which could encourage new buyers to enter the market at a lower price.
Another key reason for the sharp outflows from Bitcoin ETFs is the impact of rising interest rates. The yield on ten-year US Treasury bonds has now surpassed the average return that investors were making through Bitcoin arbitrage strategies.
This means that institutional investors no longer see Bitcoin ETFs as a profitable option compared to traditional assets like government bonds.
Treasury bonds are seen as low-risk investments, offering a steady return without the extreme volatility of cryptocurrencies.
As interest rates continue to rise, investors may continue to shift their money away from Bitcoin ETFs. Higher interest rates tend to put downward pressure on risky assets like Bitcoin, as investors prefer stable returns over uncertain price movements.
What happens next?
The next few months will be crucial in determining whether Bitcoin ETFs can recover investor confidence. Much will depend on how interest rates, inflation, and market sentiment evolve.
If macroeconomic conditions improve, institutional investors might return to Bitcoin ETFs, especially if they see Bitcoin as a valuable long-term asset.
However, if the trend of withdrawals continues, it could lead to further price declines for Bitcoin. ETFs have been one of the main ways for large institutions to invest in Bitcoin, so if outflows remain high, Bitcoin’s overall price could remain under pressure.
At the same time, some investors believe that the current situation is just a temporary setback. Many Bitcoin supporters argue that the cryptocurrency still has strong long-term potential, especially as more institutions and governments explore its use.
Despite the recent challenges, Bitcoin ETFs still hold billions of dollars in assets, and the market for regulated Bitcoin investments continues to grow.
Whether Bitcoin ETFs can bounce back or continue to face outflows will largely depend on economic conditions and investor sentiment in the months ahead.
For now, the record-breaking outflows signal that investors are reassessing their approach to Bitcoin, weighing the risks and rewards of holding digital assets in a changing financial landscape.
