Bitcoin ETFs Underwater: $2.8 Billion in Outflows and Systemic Risks Shake the Market

Institutional Investors in the Red: When the Largest Bitcoin Investors Post Losses

The seemingly unstoppable success story of Bitcoin ETFs has suffered a significant setback. After massive capital outflows of $2.8 billion within two weeks, Bitcoin now trades below the average entry price of all US spot ETF investors. While the market struggles with a price decline of over 40 percent from its peak, new accusations against the world's largest crypto exchange Binance reveal potentially deeper structural problems that extend far beyond normal market cycles.

The Facts

The eleven US spot Bitcoin ETFs currently manage assets of approximately $113 billion and collectively hold about 1.28 million BTC ^[1]. This corresponds to an average entry price of roughly $87,830 per Bitcoin. However, the Bitcoin price crashed from $84,000 on Saturday by around 11 percent to a nine-month low of approximately $74,600 ^[1]. "That means the average ETF purchase is underwater," explained Alex Thorn, Head of Research at Galaxy ^[1].

The ETFs experienced their second and third-largest outflow waves ever: $1.49 billion last week and $1.32 billion the week before ^[1]. Particularly notable: While Bitcoin has fallen 40 percent since its October high, the ETFs' assets under management declined by 31.5 percent from their peak of $165 billion ^[1]. Thorn interprets this as a sign of "hodling" by institutional investors, as cumulative inflows have only decreased by 12 percent while Bitcoin fell 38 percent ^[1].

Nick Ruck, Director at LVRG Research, warned of a full-blown bear market should no recovery materialize soon. "The crypto market continues its selloff as Bitcoin falls to around $76,000 amid heightened macroeconomic uncertainty," he said ^[1]. Ruck cited geopolitical conflicts, dollar instability, and the difficult economic situation in the US between rising unemployment and inflation as reasons ^[1].

Parallel to the ETF turbulence, a public conflict between leading crypto exchanges is escalating. Star Xu, CEO of OKX, accused competitor Binance in a post on X of triggering a "self-inflicted crisis" through "aggressive and partially misleading marketing measures" ^[2]. At the center of the accusations is Ethena's stablecoin USDe, which Binance added to its offerings just under a month before the October 2024 crash and subsequently promoted with a marketing campaign promising 12 percent returns through Binance Earn ^[2].

The particular risk of USDe lies in its construction: Unlike traditional stablecoins such as USDT or USDC, which are backed by government bonds, Ethena uses a hedging model via derivatives markets. For every USDe issued, Ethena opens an equally large short position to offset price movements ^[2]. According to Xu, Binance actively promoted the conversion of USDT and USDC into USDe, which set a dangerous cycle in motion: users exchanged their stablecoin holdings for USDe, used these as collateral to borrow more USDT, which was then converted into USDe again—with artificial yields of up to 70 percent ^[2].

"When volatility increased, USDe briefly depegged. A chain reaction of liquidations occurred," Xu analyzed ^[2]. The OKX chief claimed this "systemic risk" caused more damage than the collapse of crypto exchange FTX. In October 2024, over $19 billion flowed out of the market ^[2]. Solana founder Anatoly Yakovenko shared Xu's critical post, whereupon Binance founder Changpeng Zhao unfollowed him ^[2].

Analysis & Context

The combination of ETF outflows and accusations against Binance reveals two parallel developments putting pressure on the Bitcoin market. First, the fact that institutional ETF investors are now predominantly underwater for the first time shows that even the supposedly "strong hands" of Wall Street are not immune to market stress. However, the circumstance that cumulative inflows have declined less in percentage terms than the Bitcoin price actually suggests resilience—many investors are not realizing their losses but waiting it out.

Historically, periods when large investor groups are underwater are critical turning points. In previous cycles, such situations led either to capitulation-like selloffs or marked bottom formations when holding conviction was strong enough. The ETF structure could paradoxically have a stabilizing effect here: Unlike direct Bitcoin holders, ETF investors cannot liquidate their positions as easily in panic, as they are bound to traditional trading hours and often pursue longer-term allocation strategies.

The Ethena-USDe controversy shines a harsh light on the systemic risks of highly leveraged DeFi constructs, especially when aggressively promoted by large centralized exchanges. The described leverage carousel—using stablecoins as collateral to borrow more stablecoins, which again serve as collateral—is fatally reminiscent of the dynamics that led to the collapse of Terra/Luna. The crucial difference: While Terra was an algorithmic stablecoin without real collateral, USDe is theoretically hedged through derivatives. But as the October liquidations showed, this hedging only works to a limited extent in volatile markets.

The macroeconomic framework conditions further exacerbate the situation. The liquidity tightening in the US mentioned by Ruck particularly affects Bitcoin as a risk asset. Should economic uncertainty continue, pressure on risk assets could persist regardless of crypto-specific developments. The fact that even positive regulatory signals such as Trump's candidate for Fed Chair could not trigger a recovery underscores the dominance of macroeconomic factors.

Conclusion

• Average ETF investors find themselves underwater for the first time, marking a psychologically critical point—the coming weeks will show whether institutional investors truly have stronger hands or whether capitulation follows

• The accusations against Binance regarding risky stablecoin products reveal structural weaknesses in the crypto ecosystem that extend beyond normal market cycles and deserve regulatory attention

• With Bitcoin significantly below $80,000 and ongoing macroeconomic uncertainties, a longer consolidation period could establish itself—technical indicators point to continued selling pressure

• The combination of $2.8 billion in ETF outflows and systemic DeFi risks creates a fragile market environment in which further negative catalysts could have disproportionate effects

• Long-term oriented investors should understand the differences between various stablecoin constructions and not underestimate the risks of highly leveraged yield strategies—what sounds too good to be true usually ends exactly that way