The weakened sentiment was largely due to US-China trade tensions and macroeconomic uncertainty. While some see the outflows as a bearish signal, analysts suggest they are largely driven by arbitrage strategies rather than true long-term selling. Meanwhile, Hong Kong-based HK Asia Holdings Limited once again expanded its Bitcoin holdings, fueling a surge in its stock price.
Bitcoin ETFs Face Record Two Week Outflows
US-based spot Bitcoin exchange-traded funds (ETFs) recently experienced their largest-ever two-week outflow after shedding more than $1.14 billion worth of Bitcoin by Feb. 21, according to Sosovalue data. This was the highest level of withdrawals since the ETFs launched on Jan. 11 of 2024, and also surpassed the previous record that was set in the two weeks leading up to June 21, when outflows reached $1.12 billion while Bitcoin was trading near $64,000. The recent downturn in ETF inflows can be linked to heightened investor concerns over the escalating trade tensions between the United States and China.
Weekly Bitcoin ETF flows (Source: SoSoValue)
The sell-off in Bitcoin ETFs can also be seen as a key indicator of sentiment among major asset management firms. According to Marcin Kazmierczak, co-founder and COO of blockchain oracle solutions firm RedStone, ETF flows provide valuable insight into institutional demand for Bitcoin.
However, he pointed out that a broader perspective is needed when assessing long-term investment behavior as ETF vehicles are typically designed for extended holding periods. Evaluating flows over a six-month or yearly period presents a much clearer picture, he said, adding that net flows have remained largely positive when viewed over the long term.
Bitcoin ETF flow (Source: Farside Investors)
The recent wave of selling coincided with growing concerns surrounding the economic and geopolitical landscape. Investors have been particularly wary of the impact of new import tariffs imposed by the US, as well as the uncertainty surrounding a potential meeting between former President Donald Trump and Chinese President Xi Jinping.
Trump suggested that a meeting may happen but has yet provided any concrete timeline, which only adds to investor apprehension. The possibility of a new trade deal is still on the table, but until clarity emerges, market participants are likely to remain cautious.
Beyond geopolitical tensions, monetary policy expectations also weighed on Bitcoin ETF flows. Interest rate forecasts, regulatory developments, and overall market sentiment all play a role in shaping investor behavior. While short-term outflows may suggest weakening sentiment, Kazmierczak pointed out that large institutional investors are still very much committed to Bitcoin through ETFs.
He mentioned that entities like the Abu Dhabi Sovereign Wealth Fund and Wisconsin’s Pension Fund all hold large Bitcoin positions despite the recent selling pressure. These long-term holders suggest that while short-term fluctuations may impact ETF flows, the broader institutional confidence in Bitcoin is still intact.
Bitcoin ETF Inflows Driven by Arbitrage
According to a report from crypto research firm 10x Research, spot Bitcoin ETF investors have largely been using these vehicles for arbitrage strategies rather than long-term investments, with only 44% of inflows tied to genuine buying. Since their launch in January of 2024, US-based spot Bitcoin ETFs attracted about $39 billion in net inflows, but just $17.5 billion of that represents long-only positions, said Markus Thielen.
(Source: 10x Research)
A large portion of these inflows, around 56%, is linked to arbitrage strategies where investors offset their exposure by shorting Bitcoin futures. This method is known as the carry trade, and it allows traders to profit from the price difference between spot Bitcoin and futures contracts.
Thielen suggested that this reliance on arbitrage strategies means that actual long-term demand for Bitcoin as part of multi-asset portfolios is much smaller than widely perceived. Instead of reflecting broad institutional adoption, a lot of the activity in Bitcoin ETFs is driven by funding rates and short-term basis rate opportunities.
Thielen also pointed out that the largest holders of BlackRock’s IBIT ETF are hedge funds and trading firms that specialize in exploiting market inefficiencies and yield spreads rather than actually making directional bets on Bitcoin’s long-term price movements. With funding rates and basis spreads currently too low to justify new arbitrage positions, many of these firms halted additional inflows into Bitcoin ETFs and have started unwinding existing positions that are no longer profitable. This process contributed to four consecutive trading days of outflows last week. Meanwhile, Bitcoin’s spot price remained largely range-bound.
The continued outflows dampened market sentiment because media narratives often frame them as bearish signals. However, Thielen clarified that these movements are largely market-neutral since hedge funds are selling ETFs while simultaneously buying Bitcoin futures, negating any major directional impact on Bitcoin’s price. His perspective is very similar to that of Real Vision CEO Raoul Pal, who suggested in mid-2024 that as much as two-thirds of Bitcoin ETF net inflows may have originated from arbitrage trading.
Despite this, shifts in market behavior may be on the horizon. Thielen said that genuine long-only Bitcoin buying picked up since the US presidential election, which suggests increased confidence among investors. However, with retail trading volumes declining and funding rates collapsing, arbitrage strategies have become less attractive. This pushed investors to unwind their positions.
HK Asia Expands Bitcoin Holdings
HK Asia Holdings Limited expanded its Bitcoin holdings to nearly 9 BTC, just a week after its initial purchase of the cryptocurrency led to a surge in its share price. The Hong Kong-based investment firm announced on Feb. 23 that its board approved an additional investment in Bitcoin, after a purchase of approximately 7.88 BTC on Feb. 20 for around $761,705. This latest acquisition was funded through internal resources, bringing the company's total Bitcoin holdings to approximately 8.88 BTC, acquired at an average cost of $97,021 per coin.
The firm’s initial Bitcoin purchase of 1 BTC on Feb. 16 triggered a big market reaction, with investors rushing into its stock when trading resumed. By the end of Feb. 17, HK Asia’s share price had soared nearly 93%.
On Feb. 24, shares in the company were up around 4.93% during the lunch break on the Hong Kong Stock Exchange, trading at approximately 6.60 Hong Kong dollars (86 cents). If the stock maintains its momentum, it could close above its all-time high from June 2019. The company’s stock has already surged by an astonishing 1,700% since the beginning of the year.
HK Asia’s move reflects a growing trend among publicly traded firms that are acquiring Bitcoin as part of their investment strategy to enhance company earnings. In an earlier announcement, the company’s board specifically referred to the increasing popularity of cryptocurrencies in commercial sectors as one of the driving factors behind its decision to invest in Bitcoin. Despite its purchases being below the legal threshold requiring disclosure, HK Asia voluntarily shared the information with the public.
