The U.S.-listed spot bitcoin exchange-traded funds (ETFs) have experienced substantial outflows recently, coinciding with a 35% drop in price from $125,000 to the low $80,000s, leading to discussions about institutional capitulation.
However, data analysis from Amberdata indicates a more intricate situation: the influx of concentrated redemptions due to “basis trade” or the closing of arbitrage bets, rather than widespread panic within ETFs, as total holdings remained solid at 1.43 million BTC.
“Since mid-October, Bitcoin ETFs have seen nearly $4 billion in outflows. The price has plummeted from $125,000 to the low $80,000s—a 35% decline erasing six months of gains. The common view: institutions came, assessed the situation, and exited,” stated Michael Marshall, head of research at Amberdata, in a report.
“Nonetheless, the selling was notably concentrated among a handful of issuers and linked to a mechanical unwind of basis trades, rather than widespread fear among investors,” Marshall elaborated.
What capitulation?
Capitulation in financial markets refers to a phase where sellers deplete their resources after extended downturns, typically marked by panic selling, elevated trading volumes, and strong fear indicators.
In the context of ETFs, genuine capitulation would imply broad sell-offs across various issuers and significant redemptions. However, this was not evident over the past two months.
Marshall observed that BlackRock accounted for 97%-99% of the recent weekly outflows, despite managing only 48-51% of total assets, while Fidelity FBTC saw inflows and other smaller ETFs remained stable.
Across the full 53-day span from October 1 to November 26, Grayscale experienced a loss of $923 million, accounting for 53.2% of total gross outflows, followed by 21Shares and Grayscale Mini. Collectively, these three entities were responsible for 89.1% of outflows, while BlackRock and Fidelity reported inflows.
This dual perspective highlights that there was no widespread capitulation, only focused unwinds. The day-to-day variability in ETF fund flows was significant, showing a standard deviation of $372 million relative to an average daily flow of $27 million.
Targeted unwinds driven by carry trades
The underlying issue? Declining basis spreads within the spot-futures arbitrage trade, or basis trade, where funds purchased ETF shares and sold futures to capture contango yield—neutral in direction, rather than a specific view on BTC price.
The annualized 30-day basis, illustrating the spread between futures and spot prices, contracted by 217 basis points from 6.63% to 4.46%, with 93% of recent days falling beneath the 5% breakeven point, according to Marshall.
This compelled carry traders to liquidate positions—selling spot and repurchasing futures. The reduction of perpetual futures open interest alongside ETF outflows serves as evidence for this shift.
Data monitored by Marshall reveals that BTC perpetual open interest decreased by 37.7% ($4.23 billion from peak to trough), showing a correlation of 0.878 with basis movements, offering near-congruent evidence of simultaneous ETF sales and futures short covering.
What’s next?
With basis traders eliminated, the remaining ETF ownership signifies persistent institutional capital wagering on long-term price growth. In essence, the market has become cleaner and reset for a more considerable rally.
“With the arbitrage overhang resolved, ongoing flows are increasingly indicative of genuine allocation rather than yield harvesting. The emerging market is less funded through leverage, more driven by conviction, and structurally better than the one that entered October,” Marshall concluded.
