Investors reportedly withdrew over $1 billion from U.S. spot Bitcoin exchange-traded funds (ETFs) on Tuesday, marking the largest single-day outflow since these funds debuted in January last year. The waning demand for ETFs has further exacerbated Bitcoin's decline.

Bitcoin Funds Experience Massive Outflows

According to data compiled by Bloomberg, among these funds, the Fidelity Wise Origin Bitcoin Fund (FBTC) saw the largest outflow, followed by the iShares Bitcoin Trust ETF (IBIT). Meanwhile, Bitcoin's price has been falling as investors shun riskier assets amid uncertainty. Overall, Bitcoin funds have experienced outflows of approximately $2.1 billion over the past six days, the longest period of outflows since June last year.

This week, Bitcoin has been under pressure, with its price dropping to the lowest level since mid-November last year. Other cryptocurrencies have also declined.

Amid the outflows from Bitcoin funds, investors took advantage of recent stock sell-offs, injecting nearly $7 billion into the invesco QQQ Trust (QQQ) and the SPDR S&P 500 ETF (SPY.US) in a single trading day.

Geoff Kendrick, Global Head of Digital Asset Research at Standard Chartered, commented, Digital assets are still very retail-flow driven, despite institutional flows over the past 12 months. This sets them apart from equities and fixed income. In my opinion, this means the average hand is weaker or has less deep pockets to ride losses. Hence more pain is likely.

Kendrick predicts that Bitcoin's price will drop further—to around $80,000—at which point he would buy the dip.

Matthew Sigel, Head of Digital Asset Research at VanEck, believes that the record outflows may stem from hedge funds unwinding so-called basis trades, a strategy that exploits price differences between spot and futures markets. Some investors use ETFs to profit from cryptocurrency volatility or to offset short positions in derivatives.

Sigel explained, This strategy involves buying Bitcoin spot (often through ETFs) while simultaneously shorting Bitcoin futures to lock in a low-risk return. However, the profits from this trade have recently collapsed, making it far less attractive. As a result, hedge funds that were using ETFs for this strategy have likely closed their positions, leading to significant redemptions.

Is $70,000 the Next Stop?

As the so-called Trump trade cools, Bitcoin options indicate that investors and traders are hedging against the cryptocurrency falling to levels seen shortly after the U.S. presidential election.

According to data from Deribit, the largest crypto options exchange, the open interest for put options with a strike price of $70,000 is the second−highest among all contracts expiring on February 28. A total of $4.9 billion in open interest is set to expire on Friday.

Since President Donald Trump took office in January, Bitcoin has fallen about 20% from its all-time high, as his tough stance on allies and geopolitical rivals has shaken investor confidence, and concerns about rising inflation persist. Last week's record-breaking hack of the Bybit exchange also rattled the crypto industry.

Chris Newhouse, Research Director at Cumberland Labs, noted, "Tariff policies are further dampening the outlook, and stubbornly high short-term inflation expectations add to the overall caution."

Data compiled by Coinglass shows that on Wednesday, the liquidation of long and short crypto trades accelerated, with approximately $425 million in positions liquidated in just four hours, as of around 3:30 PM EST. Over the past three days, more than $2 billion in bullish bets have been liquidated.

Bitcoin fell for the fourth consecutive day, dropping as much as 5.6% to $83,744, with a total decline of around 13% during the period. This marks the largest four-day drop since August last year. Other tokens like Ethereum and Solana continued to suffer significant losses, falling 7% to 10%.

In the absence of decisive signals for a new bull market, investors are staying on the sidelines and withdrawing from cryptocurrencies in a risk-off environment.