Why Are Institutions Redeeming BTC ETFs on a Large Scale? A Complete Analysis of U.S. Treasury Yields, Inflation, and Rate Hike Expectations

In early June 2026, the U.S. spot Bitcoin ETF market experienced an unprecedented wave of redemptions. According to daily flow data disclosed by institutions like SoSoValue, as of June 7, Bitcoin ETFs had recorded 14 consecutive trading days of net outflows, with over 66,000 Bitcoins withdrawn from ETF products during this period, amounting to approximately $4.5 billion in value. This marks the longest and largest continuous capital outflow since the spot Bitcoin ETF was approved and listed in the U.S. in January 2024.

During the same period, Bitcoin's price retreated from above $77,000 in mid-May to the $63,000 range, with a 30-day decline of 10.73%, turning its performance from positive to negative year-to-date. Against the backdrop of ongoing capital outflows, the market faces a critical question: what factors are driving large-scale redemptions of BTC ETFs by institutions, and are these factors sustainable?

The stickiness of risk-free rates—how elevated U.S. Treasury yields increase the opportunity cost of holding Bitcoin; the re-emergence of inflation narratives—how geopolitical conflicts pushing energy costs higher alter market expectations for price trajectories; and shifts in monetary policy expectations—how statements from the new Federal Reserve Chair influence interest rate pricing. These three macro dimensions interact and together form the macroeconomic structure currently suppressing institutional allocation willingness.

Overview of ETF Capital Outflows: Quantity and Structure

Before delving into macro analysis, it is necessary to establish a data baseline. As of early June 2026, the core performance of U.S. spot Bitcoin ETFs is as follows:

In terms of outflow scale, from mid-May to June 7, the net outflow of Bitcoin ETFs exceeded $4.5 billion, with a single-week outflow in the first week of June reaching tens of millions of dollars. The assets under management (AUM) dropped from a recent high of about $104 billion to approximately $94 billion, evaporating roughly $10 billion.

Regarding daily flows, June 4 set a intra-cycle peak of outflows—net outflow of 7,272 Bitcoins in one day, estimated at about $465 million based on that day's price. On June 1, combined outflows from Bitcoin and Ethereum ETFs totaled $528.2 million, with BlackRock’s IBIT experiencing a single-day net outflow of about $386.6 million, accounting for roughly three-quarters of that day's total Bitcoin ETF redemptions.

In terms of fund structure, BlackRock’s IBIT was the main source of outflows in this cycle. During the 14-day continuous outflow period, IBIT’s weekly net redemption reached $1.34 billion; Fidelity’s FBTC saw outflows of about $202 million; Grayscale’s GBTC experienced outflows of $144 million. This differentiation indicates that outflows are not evenly distributed but are highly concentrated in the most liquid, previously institutionally concentrated leading products.

It is important to note that capital flowing out of Bitcoin and Ethereum ETFs does not necessarily mean institutions are fully retreating from digital assets. According to previous market analysis by Gate News, during the same period, funds related to XRP, Solana, and Hyperliquid continued to attract net inflows. The current outflows more reflect a rotation within digital assets by institutions rather than a wholesale exit from the asset class. However, in the case of Bitcoin ETFs, the scale and speed of this capital withdrawal are significant and cannot be ignored.

The Macro Factors Suppressing the Market: A Triple Play

First: The stickiness of U.S. Treasury yields—how high yields raise the opportunity cost of holding zero-yield assets

Bitcoin, as an asset that does not generate interest or dividends, typically has its opportunity cost measured by the risk-free rate—when the risk-free rate rises, the relative attractiveness of holding Bitcoin diminishes.

In early June 2026, the 10-year U.S. Treasury yield remained around 4.45%. Although this slightly retreated from the peak above 4.60% in mid-May, it still remains in a high range not seen since 2007. The 2-year Treasury yield is about 4.03%, while the current Federal Reserve policy rate is between 3.50% and 3.75%. The entire yield curve’s mid-to-long end is significantly higher than the short end—this structure generally indicates market expectations of elevated medium-term economic growth and inflation.

For institutions holding Bitcoin ETFs, a 10-year yield of 4.45% implies a clear choice: allocate the same amount of funds into U.S. Treasuries to earn nearly 4.5% annualized risk-free return. While Bitcoin offers price elasticity, its 30-day decline has already reached 10.73%, with volatility far exceeding traditional assets. When risk-free rates are high, Bitcoin’s risk-adjusted return threshold is passively elevated—markets require larger upward expectations to compensate for the opportunity cost of foregoing a guaranteed 4.5% return.

This mechanism was confirmed in May’s market performance. Data shows that Bitcoin ETF experienced net outflows exceeding $645 million on a single day in May, when bond yields’ upward pressure was interpreted by institutions as a tightening macro signal. The starting point of the continuous outflows—mid-May—closely coincides with the period when the 10-year Treasury yield approached 4.60%, which is no coincidence.

Second: Rising oil prices and accelerating inflation

If the 10-year Treasury yield determines the opportunity cost of holding Bitcoin, then inflation determines the real return of holding cash or bonds. When inflation rises again, nominal interest rates, even if maintained at high levels, erode purchasing power—yet the impact on Bitcoin’s narrative is more complex: on one hand, inflation is often viewed as a hedge against Bitcoin; on the other hand, if inflation stems from supply-side shocks (such as rising energy prices), it tightens monetary conditions and suppresses risk appetite, creating a negative feedback loop.

From May to June 2026, geopolitical conflicts in the Middle East escalated again. Ongoing military clashes between Iran and Israel, along with risks of shipping disruptions through the Strait of Hormuz, triggered widespread concerns over global oil supply. In this context, Brent crude futures approached $98 per barrel, and WTI crude futures briefly touched around $97. Compared to the same period in 2025, the oil price center shifted upward by nearly 20%.

The transmission of energy costs into consumer price indices has begun to manifest. In April 2026, the U.S. CPI year-over-year growth surged to 3.8%, significantly up from 3.3% in March, reaching the highest level since May 2023. Core CPI increased by 2.8% YoY, both near half-year highs, indicating that inflation stickiness is strengthening. After May, market concerns about inflation further intensified: multiple institutions forecast that May’s YoY CPI could exceed 4%. Some U.S. strategists even warned that if MoM CPI growth exceeds 0.4% in May, the YoY rate could approach 5% before the U.S. midterm elections.

Structurally, this inflation uptick exhibits typical “energy-driven” features, fundamentally different from the demand-side inflation caused by fiscal stimulus and supply chain disruptions in 2021–2022. Rising energy costs not only directly push up CPI figures but also permeate core inflation through transportation costs and industrial input prices. For institutional investors, supply-side inflation is harder to counteract—traditional monetary tightening that suppresses demand takes longer to transmit to supply-side prices. During this period, each percentage point increase in oil prices can systematically impact risk asset valuation models.

Interest rate scenario projections: assuming May’s YoY CPI exceeds 4%, combined with strong employment data (e.g., 172k new jobs in May, well above the expected 88k), market expectations for the Fed to maintain tightening into the end of 2026 will further solidify, possibly even pricing in rate hikes. This implies that nominal interest rates still have room to rise—even if the 10-year Treasury yield remains at current levels, continued inflation could cause real rates to fall or stay low, which is not a positive signal for risk assets but rather points to a stagflation scenario: slowing growth + high inflation + inability to cut rates.

Third: Policy expectation shifts with the new Fed Chair

On May 22, 2026, Kevin Warsh officially succeeded Jerome Powell as Chair of the Federal Reserve. Market opinions on the policy implications of this leadership change vary, but a consensus is forming: under Warsh, the Fed may lean more toward maintaining a tightening stance than during Powell’s tenure.

Warsh’s pre-inauguration statements sent clear signals. He emphasized “price stability = inflation is no longer a hot topic,” indicating that restoring the Fed’s credibility and fighting inflation will be his top priorities. This stance sharply contrasts with market expectations of rate cuts—previously, markets anticipated possible easing within 2026, but Warsh’s position is shifting that outlook.

Market pricing of Warsh’s policy path changed rapidly after the May employment data release. Non-farm payrolls in May grew by 172,000, far exceeding the expected 88,000. The dollar index hovered near 99, and the CME FedWatch tool showed the probability of at least one rate hike before December 2026 rising sharply to around 67%–72%. As of early June, this probability remained around 70%.

It’s important to distinguish between the “probability of rate hikes within the year” and the “probability of a rate hike at the June FOMC meeting.” The latest CME FedWatch data shows a 97% chance of holding rates steady in June, with only about 15.5% probability of a hike in July. This indicates that market expectations favor a rate hike toward the end of the year rather than in the short term—yet, even so, the anticipation of a year-end hike has already exerted upward pressure on the long-term yield curve.

Goldman Sachs economists also revised their forecasts after the employment data, delaying their previous expectation of a rate cut in December 2026 to the first rate cut in June or December 2027. The shift from “rate cuts within the year” to “possible rate hikes within the year,” and then to “rate cuts only in 2027,” reflects two major revisions in policy outlook over the past month. For institutions holding Bitcoin ETFs, each tightening expectation prompts a reassessment of discount rates and risk premiums in their asset allocation models.

The Interaction of the Three Macro Factors and Causality of ETF Outflows

Examining any one of these three dimensions in isolation cannot fully explain the scale and persistence of this round of ETF outflows. The real driver is the interaction and cumulative effect of all three:

First, the risk-free rate offers an alternative. A 10-year Treasury yield above 4.4% means holding government bonds yields close to historical averages, significantly raising the opportunity cost of holding zero-yield assets. For institutions highly sensitive to Sharpe ratios—such as pension funds, insurance companies, and sovereign wealth funds—marginal returns from shifting funds out of volatile digital assets into fixed income are substantially improved.

Second, inflationary pressures compress policy maneuvering space. If CPI remains around 4% or higher, even the Fed’s willingness to cut rates is constrained. Although May CPI data has not yet been officially released, multiple institutions forecast YoY increases exceeding 4%, with MoM figures possibly rising further. In this environment, the “inflation hedge” narrative for Bitcoin faces falsification risk—while real interest rates might temporarily turn negative due to rising inflation, the continued upward trajectory of nominal rates will also compress risk asset valuations.

Third, the shift in policy expectations creates a “self-fulfilling” feedback loop. Warsh’s stance and strong employment data jointly push the market’s probability of a year-end rate hike toward about 70%. This probability influences asset prices via the yield curve, prompting institutions—especially those with long asset-liability management cycles and high sensitivity to interest rate paths—to preemptively adjust their asset allocations.

Market data aligns with this logical deduction. In early June, cryptocurrency spot ETFs experienced a total net outflow of $1.72 billion over two weeks. The outflow rate shows an “accelerating” trend—first week of June’s outflows far exceeded those of late May. This acceleration coincides with macro narratives: the anticipation of May CPI release, policy signals following Warsh’s appointment, and rising oil prices due to Middle East tensions—all occurring simultaneously and intensifying institutional risk aversion in the short term.

Spillover Effects: ETF Outflows and Bitcoin Price Correlation

During the 14-day continuous outflow cycle, Bitcoin’s price retreated from around $70,000 to the $63,000 range, with a maximum drawdown close to 10%. The close correlation between ETF flows and price movements aligns with patterns observed in 2024–2025—since the approval of the spot Bitcoin ETF, daily net flows have shown a significant positive correlation with Bitcoin price volatility.

However, this correlation is not purely causal. ETF outflows act as both amplifiers of price declines and as variables responding to macro expectations. When institutions reduce risk exposure due to macro factors, ETF redemptions are among the most direct channels of execution. Therefore, attributing the price decline solely to ETF outflows risks a causal misattribution—more accurately, macro environment changes simultaneously cause redemptions and price drops, with ETF flows amplifying and transmitting these effects.

One way to verify this is to observe the evolution of outflow momentum. The start of outflows in mid-May coincided with the 10-year Treasury yield surpassing 4.60%. The acceleration of outflows in early June aligns with oil prices approaching $97, employment data exceeding expectations, and the probability of a year-end rate hike rising to 70%. This timeline indicates that the drivers of capital outflows are exogenous rather than endogenous—caused by macro judgment shifts rather than structural issues within ETF products.

Conclusion

In summary, the core drivers behind the current ongoing redemption of Bitcoin ETFs by institutions are clear: elevated risk-free rates increase the opportunity cost of holding zero-yield assets; energy-driven inflation re-ignites macro tightening constraints; and the policy expectation shift with the new Chair further tightens market outlooks on interest rates. These three macro factors reinforce each other, collectively raising the risk-adjusted return threshold for Bitcoin.

From a forward-looking perspective, three variables will determine the sustainability of capital outflows:

1. The actual May CPI reading—if it significantly exceeds expectations (e.g., approaching 5% YoY), the likelihood of the Fed turning to easing within the year diminishes further, and year-end rate hike expectations could rise, exerting additional pressure on risk assets.

2. The evolution of Middle East geopolitical tensions—if the Strait of Hormuz remains blocked or escalates, oil prices could rise further, prolonging inflation pressures. Notably, early June saw a slight retreat in long-term yields, partly due to short-term market pricing in diplomatic signals from the Trump administration. However, if the conflict escalates again before resolution, yields could resume upward.

3. Warsh’s policy stance at the upcoming FOMC meeting on June 16–17—this will be his first policy appearance, and his tone regarding inflation and employment will directly influence market expectations for subsequent policy paths.

For market participants, understanding the interaction of these macro factors is more important than predicting specific capital flow figures. As long as the 10-year Treasury yield remains above 4%, inflation remains above policy targets, and the Fed’s hawkish signals persist, the marginal attractiveness of zero-yield assets to institutional funds remains unfavorable. The market for Bitcoin ETFs has never experienced a full “tightening cycle” since its inception in 2024—perhaps the ongoing June 2026 outflows mark the beginning of this cycle’s realization.