Mid-May to early June 2025 marked the longest streak of consecutive net outflows for US spot Bitcoin ETFs since their launch in January 2024. According to data from SoSoValue and Galaxy Research, from May 15 to June 3, these ETFs saw net outflows across 13 straight trading days, totaling approximately 59,351 Bitcoins—valued at roughly $4.33 billion at prevailing market prices. On May 28, BlackRock’s IBIT recorded a single-day net outflow of $527.84 million, nearly matching its historical record for largest daily redemption. During this period, the Bitcoin price declined more than 21% from its peak near $82,828, briefly dipping below the $60,000 mark on June 5.
Is there a direct causal link between ETF net outflows and Bitcoin price declines? If so, what mechanisms drive this relationship? To answer these questions, we need to examine the underlying structure of ETF redemption mechanisms: When ETF shares are redeemed, must Authorized Participants (APs) sell Bitcoin in the spot market? Does this selling necessarily exert downward pressure on prices? Understanding these two aspects is essential to unraveling the connection between ETF fund flows and crypto asset prices.
The Fundamentals of ETF Redemption: The Role of APs and Two Operational Models
To understand how redemptions translate into selling pressure in the spot market, it’s crucial to clarify the basic architecture of ETF redemption. The creation and redemption mechanism is the core tool for keeping an ETF’s market price anchored to its Net Asset Value (NAV). The institutions executing these operations are known as Authorized Participants (APs)—typically large, well-capitalized and compliant financial firms such as Jane Street, Virtu Americas, JP Morgan Securities, Citadel Securities, Goldman Sachs, and Morgan Stanley.
ETF share creation and redemption generally follow two mainstream models: the cash model and the in-kind (physical) model. In the cash redemption model, APs return ETF shares to the issuer, who then sells an equivalent amount of spot Bitcoin in the open market and pays the AP in US dollars. This means that every ETF share redemption under the cash model is accompanied by the issuer selling Bitcoin in the spot market.
The in-kind redemption model operates differently. APs return ETF shares to the issuer and receive an equivalent amount of spot Bitcoin directly, rather than cash. In this model, redemptions do not require forced selling of Bitcoin in the spot market—APs can choose to hold the Bitcoin or dispose of it as they see fit, with timing and method entirely at their discretion. In July 2025, the US SEC officially approved in-kind creation and redemption mechanisms for spot Bitcoin and Ethereum ETFs, aligning these products with traditional ETF frameworks. Prior to this, all approved spot crypto ETFs operated exclusively under the cash model.
APs’ Spot Market Selling During Redemption: Mandatory in Cash, Optional in In-Kind
With these two models in mind, a natural question arises: How do APs interact with the spot market during the redemption process?
In the cash redemption model, spot selling by APs is dictated by the issuer’s process. Once a redemption order is triggered, the ETF issuer sells spot BTC within a specified window (typically during daily NAV calculation), then delivers the resulting cash to the AP. To fulfill all redemption orders for the day, issuers often need to execute large sell orders in a short timeframe, increasing the density of sell pressure in the spot market. ETF specialist Laurent Kssis notes that when large-scale redemptions occur via the cash mechanism, APs must execute substantial sell orders in the underlying crypto market, amplifying volatility—especially when the market is already under stress.
In the in-kind redemption model, APs receive Bitcoin directly, and the redemption process no longer mandates spot selling. However, this does not mean that APs never sell in the spot market—it simply shifts the decision from a process requirement to the AP’s discretion. After receiving Bitcoin, APs may choose to sell in the spot market for several reasons: First, as liquidity providers, their inventory management strategies may require converting Bitcoin to cash for capital efficiency; second, APs may have hedged positions in the futures market and use the received Bitcoin to close those positions, bypassing the spot market; third, if APs anticipate further price declines, they may proactively sell in the spot market to lock in value.
Mechanical vs. Sentiment-Driven Sell Pressure: Two Dimensions of Price Transmission
Understanding why ETF outflows depress prices hinges on distinguishing between two sources of sell pressure: mechanical and sentiment-driven. These forces differ significantly in their transmission mechanisms, triggers, and duration.
Mechanical Sell Pressure: Structural Forces from the Redemption Process
Mechanical sell pressure refers to selling directly generated by the ETF redemption process itself—specifically, the concentrated spot selling by issuers under the cash redemption model. This type of pressure has several defining characteristics:
First, mechanical sell pressure is a product of procedural rules, not directional market judgment by APs or issuers. As long as cash redemption orders are executed per protocol, spot market selling is inevitable. Second, mechanical sell pressure is temporally concentrated. Because NAV calculation and redemption execution occur in specific windows, sell orders are released in pulses rather than evenly throughout the trading day. Third, the scale of mechanical sell pressure is directly proportional to the volume of redemption orders—the larger the redemptions, the greater the sell pressure.
The historical net outflow episode from May to June 2025 offers a reference point for mechanical sell pressure. During the 13-day streak, IBIT’s largest weekly net outflow reached $1.42 billion. If calculated as full spot selling under the cash model, this week alone saw mechanical sell pressure equivalent to about 20,000 Bitcoins sold in the spot market.
Sentiment-Driven Sell Pressure: Secondary Forces from Market Expectations
Sentiment-driven sell pressure arises from how investors interpret ETF fund flows. When the market observes sustained net outflows, other participants may adjust their positions, generating secondary selling. The key differences between sentiment-driven and mechanical sell pressure are:
Mechanically, sell pressure is generated directly by redemption processes, while sentiment-driven pressure is triggered by market interpretation of information—not a procedural necessity. In terms of timing, mechanical sell pressure is concentrated during redemption execution windows, whereas sentiment-driven pressure can persist for days or weeks as information circulates. In terms of duration, mechanical sell pressure ceases as redemption orders decline, but sentiment-driven pressure may continue even after redemptions slow—so long as expectations of continued outflows persist, sentiment-driven selling may linger.
In practice, these two types of sell pressure do not operate in isolation; they form a reinforcing cycle: Mechanical sell pressure drives prices lower, heightening market concerns about ongoing ETF outflows, prompting more redemption orders and further mechanical sell pressure, pushing prices down again. This positive feedback loop explains why, during the May–June net outflow period, Bitcoin’s price drop (about 21%) did not correspond linearly to the decline in ETF assets under management (from roughly $104 billion to $94 billion)—sentiment-driven sell pressure significantly amplified the effect.
Redemption Doesn’t Always Mean Direct Selling: The Buffering Effect of In-Kind Mode
A crucial point to note: ETF net outflows do not always equate to direct selling in the spot market. If an ETF uses the in-kind redemption model, or if APs choose not to sell the received Bitcoin in the spot market, the actual transmission of sell pressure may be much lower than the nominal outflow would suggest.
Since the SEC approved in-kind creation and redemption in July 2025, major products like BlackRock’s IBIT have adopted the in-kind model. Under this new mechanism, APs receive Bitcoin upon redemption rather than cash, so the issuer is not forced to sell in the spot market. This means that even if large net outflows occur again, mechanical sell pressure on the spot market may be reduced compared to the cash-only era. However, this conclusion depends on APs choosing not to sell the Bitcoin they receive—APs’ decisions are shaped by their hedging strategies, inventory constraints, and market expectations, and cannot be assumed in advance.
Furthermore, even under the in-kind model, price discovery can still be influenced by AP activity. APs enjoy unique trading flexibility due to regulatory exemptions (such as Reg SHO’s naked short selling exemption), enabling them to arbitrage when ETF market prices diverge from NAV. In certain market conditions, APs may leverage this structural advantage to affect the integrity of price discovery. Thus, while in-kind mode reduces mechanical sell pressure, it does not eliminate the complex interplay between APs and the market.
Conclusion
Spot selling by APs during ETF redemption is not always a given; its price impact depends on two core variables: whether the redemption is cash or in-kind, and how APs choose to handle the Bitcoin they receive. In the cash redemption model, redemptions necessarily involve issuers selling in the spot market, creating quantifiable mechanical sell pressure. In the in-kind model, redemptions do not force selling, but APs’ subsequent decisions may still generate sell pressure. The 13-day net outflow streak from mid-May to early June 2025 (totaling about $4.33 billion) occurred under a cash-dominated regime, with mechanical and sentiment-driven sell pressure combining to drive Bitcoin’s significant price decline during that period.
The practical takeaway: When the market observes ETF net outflow data, the raw outflow numbers do not directly translate to spot market selling volume. What truly determines the strength of sell pressure and price impact are the redemption model, AP behavior, and the market’s collective interpretation of these processes. For investors tracking the relationship between ETF fund flows and crypto asset prices, shifting the analytical focus from "how much outflow" to "how outflows occur" offers a more accurate lens on market dynamics. As in-kind creation and redemption mechanisms become more widespread in major products, the transmission chain between ETF outflows and spot prices will become more layered and complex than in the cash-only era.
