Large Bitcoin ETF outflows: withdrawals and how indices work

Record withdrawals from Bitcoin ETFs

On Thursday 22 October, exchange-traded funds (ETFs) dedicated to Bitcoin saw their assets decline by $635.49 million, marking the largest amount of money withdrawn in a single trading day since the session of 25 June. This wave of withdrawals erased nearly 60% of the combined inflows recorded over the previous three trading sessions, while the price of Bitcoin fell from $85,000 to below $81,000 in a single day. Negative flows followed immediately after the price decline, highlighting how sensitive investors are to movements in the spot market.

The two main products, BlackRock's IBIT and Fidelity's FBTC, together recorded $471.51 million in outflows, representing around 74% of total withdrawals. IBIT lost $254.05 million, while FBTC lost $217.46 million. Other funds, including Ark's ARKB, 21Shares, Grayscale's GBTC and Bitwise's BITB, also recorded losses, although on a smaller scale. Only Morgan Stanley's MSBT fund reported a modest inflow of $2.33 million, which was not enough to offset the broader wave of withdrawals from the other products.

Impact on net assets and trading volume

The substantial outflows caused Bitcoin ETFs' net assets to fall by nearly $5 billion, bringing them down to $104.71 billion. At the same time, daily trading volume reached $2.56 billion, reflecting a high level of activity and a substantial amount of trading despite the downward trend prevailing in the market. When the figures are considered across the week as a whole, Bitcoin ETFs nevertheless retained a positive net balance of $442.67 million. However, the monthly balance turned negative, with a deficit of $174.50 million, indicating growing fragility in investment flows.

This volatility in fund flows shows that investors use ETFs as a channel for rapid access to Bitcoin, but withdraw their capital as soon as the price retreats. The phenomenon is not limited to Bitcoin: Ether ETFs followed the same path, recording $110.50 million in outflows after a day that had brought $14.96 million in inflows. The largest losses came from BlackRock's ETHA, at $75.45 million, and Grayscale's Mini Trust, at $10.69 million.

How indices work and the role of providers

ETFs rely on indices constructed according to precise rules established in advance. According to MSCI, creating an index begins with selecting eligible securities based on criteria such as liquidity, free float and the ability to buy or sell them under the conditions being sought. Once the securities have been selected, they are assigned weights, often according to their market capitalisation, which combines the share price with the number of shares outstanding. These criteria form the rules under which the selected securities are represented in the index.

Index providers carry out periodic reviews so that the composition of the index takes account of the changes occurring both in the market and among the companies it includes. These reviews ensure that the index remains representative of its intended segment, whether that is a country, a region, a sector or a size category. Bitcoin ETFs therefore use specific indices reflecting Bitcoin's performance in spot markets. However, the speed at which money moves into and out of these funds shows that simply having an index is not enough to stabilise capital when the underlying price fluctuates sharply.