The cryptocurrency market experienced a tumultuous day on Tuesday, with Bitcoin plunging to lows below $87,000 and causing a ripple effect across the entire market. Notably, investors hurriedly withdrew funds from U.S.-listed spot Bitcoin exchange-traded funds (ETFs) at an unprecedented rate.
According to data from SoSoValue, the 11 spot ETFs saw a substantial net outflow of $937.78 million, marking the largest single-day redemption since their inception in January 2024. Fidelity’s FBTC bore the brunt of the outflow, with a total of $344.65 million, followed by BlackRock’s IBIT with $164.37 million. The remaining ETFs all experienced outflows of less than $100 million each.
The waning interest in these ETFs can be attributed to the diminishing premium in CME-listed Bitcoin futures, which has eroded the appeal of the cash and carry arbitrage strategy. Furthermore, the yields from these BTC and ETH carry trades now barely exceed those of the U.S. 10-year Treasury note, which stood at 4.32% at the time of reporting.
The cash and carry strategy, popular among institutions since early last year, involves purchasing the spot ETF and simultaneously selling the CME futures to capitalize on the premium while mitigating price direction risks.
Velo Data data reveals that the annualized one-month basis (premium) in CME Bitcoin futures plummeted to 4% on Tuesday, the lowest level in nearly two years and a significant drop from the almost 15% recorded in December. This indicates a substantial decline in the yield available through the cash and carry strategy in just two months.
Similarly, the basis in Ether futures also experienced a sharp decline to around 5%, prompting a total outflow of $50 million from U.S.-listed spot Ether ETFs on Tuesday.
Overall, the cryptocurrency market’s recent turbulence and the exodus of funds from ETFs underscore the evolving dynamics and challenges facing investors in the digital asset space.