Why are more and more traders shifting from contracts to ETFs? A rational choice in highly volatile markets

Since 2026, the crypto derivatives market has continued to stay highly active. According to data from Gate Research Institute, in the first quarter of 2026, total derivatives trading volume across the entire market was approximately $18.63 trillion, with spot turnover at about 9.6 times. However, the intense volatility in the contract market is driving an increasing number of traders to re-examine leverage strategies—by May 14, 2026, the liquidation amount from Bitcoin 24-hour contract trading was approximately $108 million, and the liquidation scale for Bitcoin as a single asset has continued to remain at a relatively high level.

At the same time, the crypto ETF market is experiencing explosive growth. Cumulative net inflows into U.S. spot Bitcoin ETFs have surpassed $58 billion, and assets under management (AUM) are approximately $10.2 billion to $10.3 billion. Amid this kind of structural divergence, more and more traders are shifting from the contract market to ETFs.

The high-risk environment in the contract market is triggering large-scale forced liquidations

Risk concentration in the crypto derivatives market has increased significantly in 2026. In the first quarter of 2026, the trading ratio between derivatives and spot remained around 9.6 times, meaning market activity is highly dependent on leveraged trading. High leverage makes it extremely easy to trigger chain forced liquidations amid market volatility.

Recent data fully demonstrates this risk. In early May 2026, the crypto market saw a wave of large-scale liquidations. Coinglass data shows that liquidations of long positions were close to $165 million, while liquidations of short positions exceeded $240 million, for a combined total of about $410 million. Even when volatility was only 3.7%, high-leverage positions still faced concentrated shutdowns.

Structural deviations in funding rates further amplify the risk exposure of contract holdings. As of May 7, 2026, the 30-day average funding rate for Bitcoin perpetual contracts had been in negative territory for 67 consecutive days, surpassing 2020 to become the longest-lasting negative funding rate cycle in nearly a decade. This abnormal signal indicates that the long-short structure in the contract market has entered an extremely imbalanced state.

Spot ETF assets continue to expand, and institutional capital is accelerating into the market

In sharp contrast to the high-risk contract market, crypto spot ETFs are absorbing funds at an astonishing pace.

As of early May 2026, the combined AUM of U.S. spot Bitcoin ETFs has exceeded $86 billion. Among them, BlackRock’s iShares Bitcoin Trust (IBIT) leads with approximately $51.9 billion in AUM, accounting for about 45% of the market’s total size. In just the first week of May, IBIT recorded approximately $721.5 million in net inflows, continuing to show strong institutional demand for compliant crypto assets.

Ethereum ETFs are also showing steady growth momentum. As of May 10, Ethereum spot ETFs in total held about $13.97 billion in assets, accounting for 4.93% of Ethereum’s total market value. From May 1 to 8, spot Bitcoin ETFs cumulatively attracted about $1.25 billion in net inflows; over the same period, Ethereum ETFs saw net inflows of about $171.66 million.

Structural changes in the Bitcoin halving cycle are driving contract positions to migrate toward ETFs

2026 is the market digestion period following Bitcoin’s 2024 halving, and this cycle is showing capital-flow characteristics completely different from the past. Traditionally, halving events often trigger a concentrated surge of leveraged capital, driving a substantial rise in contract/futures holdings. However, in this cycle, BlackRock’s IBIT recorded a net inflow of $8.4 billion in the first quarter of 2026, more than double that of any competitor. This means that the funds that previously flowed into the contract market are now being absorbed in large volumes through compliant ETF channels.

The structural notes tied to Bitcoin launched by traditional financial giants such as JPMorgan further confirm this trend—Wall Street is positioning itself in the crypto market through compliant ETF routes. This reflects that institutional capital is more inclined to indirectly obtain crypto asset exposure through regulatory-compliant instruments rather than directly establishing high-leverage positions in the contract market.

Regulatory breakthroughs in Hong Kong and elsewhere are further maturing the ETF ecosystem

Regulatory innovation in Hong Kong in the crypto asset ETF space has also provided more appeal for traders to turn to ETFs. In 2025, the Hong Kong Securities and Futures Commission officially allowed virtual asset spot ETFs, under strict regulation, to participate in on-chain staking activities. This means that by using compliant ETFs to participate in staking of PoS public chains such as Ethereum, one can obtain annualized staking returns of 3% to 6%. This not only upgrades ETFs from simple price-tracking tools into financial products with an active yield function, but also provides a stronger allocation rationale for medium- and long-term capital.

Summary

In May 2026, the crypto market is at a critical inflection point of structural divergence. On one hand, under persistent negative funding rates and frequent forced-liquidation conditions, the high-risk characteristics of the contract market are becoming increasingly prominent; on the other hand, spot ETFs—with nearly $102 billion in AUM and continuous inflows of institutional capital—have become a new compliant, steady paradigm for crypto investment. The structural changes brought by the Bitcoin halving cycle and regulatory innovations in places such as Hong Kong further reinforce this trend.

For traders, the core logic has shifted from “using leverage to chase excess returns” to “strategic asset allocation within a compliant framework.” On the Gate platform, users can enjoy both the flexibility of the contract market and the compliance of the ETF channel, flexibly adjusting allocation weights between the derivatives segment and the ETF segment based on their own risk preferences and market conditions. No matter which path is chosen, understanding the deep structural changes in the market is always a prerequisite for making rational trading decisions.