According to a MarsBit article, inflows into Bitcoin ETFs are not primarily driven by institutions' long-term conviction in Bitcoin, but rather by cash-and-carry arbitrage. Arbitrageurs buy ETFs while shorting futures to lock in basis returns, so fund flow fluctuations reflect basis trade activity rather than genuine bullish sentiment. Data shows a strong correlation (0.70) between weekly fund flows and leveraged funds' short positions in futures, while Bitcoin price changes hardly explain the flows.
The article further notes that leveraged funds short futures to hedge their long ETF exposure, creating an arbitrage loop. This cash-and-carry structure makes ETF flows highly correlated with futures shorts, while Bitcoin price movements have almost no explanatory power for flow changes. Out of the cumulative $55 billion in ETF inflows, only about $1 billion is net arbitrage, meaning the vast majority of flows display stable directional characteristics. This phenomenon, dubbed "rented conviction", suggests that the apparent demand for Bitcoin ETFs is largely short-term arbitrage rather than long-term bullish allocation. Investors should be cautious when interpreting ETF flow data as a sentiment indicator, and distinguish between arbitrage-driven and true allocation capital.