In the vast expanse of financial upheaval, Arthur Hayes, the venerable co-founder of BitMEX, has uttered a prophecy that resonates with the echoes of fate: Bitcoin may descend into the fabled abyss known as ‘goblin town,’ receding to an astonishing $70,000 should the great hedge funds of Wall Street, those titans of finance, forsake their positions within the sacred realm of US Bitcoin exchange-traded funds.
Ah, the quaint notion of Bitcoin embarking on a journey into the shadows! On the day of February 24, Hayes, employing the medium of X, expounded upon the impending storm of vast outflows from the hallowed halls of spot BTC ETFs, notable among them the BlackRock iShares Bitcoin Trust—popular among the ungainly creatures of finance.
A considerable portion of these IBIT holders, primarily hedge funds—those savvy players of the game—had orchestrated their strategies, long betting on the ETFs while simultaneously shorting CME futures to claim a yield that is, at least in their eyes, safer than the unpredictable pleasures of short-term US Treasurys. Alas, how the mighty are brought low! 😅
Yet, should the yield—known in the realm of finance as the ‘basis spread’—wither away alongside the decaying price of Bitcoin, then these funds, like rats fleeing a sinking ship, shall retreat from IBIT and, with eager hands, repurchase their favored CME futures. In this saga of profit realization, we may witness a reckless plunge of BTC back to a quaint $70,000.
On the eve of the 23rd of February, Markus Thielen, head of 10x Research, penned a missive suggesting that the demand for Bitcoin ETFs predominantly springs from these hedge funds, that they engage in a grand game of arbitrage, rather than from steadfast holders driven by virtue.
This ‘basis trade’ emerges as an intricate ballet, capturing the ephemeral spread between the exalted spot price of Bitcoin, as celebrated by ETFs like IBIT, and the capricious Bitcoin futures price on the sibylline CME.
Should Bitcoin’s value falter, it invites the perilous contraction of the futures premium, spinning a chaotic web for our hedge fund protagonists, who then scramble to unwind their trades like frantic centaurs caught in a labyrinth! They shall sell their Bitcoin ETF shares whilst buying back those dwindling short CME futures. Oh, the irony!
When such frenzied phenomena occur en masse, it leads to a tumultuous exodus, a synchronized retreat that incites significant selling of spot ETFs and simultaneously applies intense pressure upon futures. Such selling begets further amplification of Bitcoin’s dismal fortune, possibly igniting a feedback loop where more and more funds, in a mad dash, seek to extricate themselves from their precarious positions.
Recently, BTC suffered a notable decline, surrendering more than 5% within a single day and tumbling to a woeful intraday low of $91,000 before staging a meager attempt at recovery on the 25th of February. The twists and turns of this dramatic tale unfold ever so delightfully! 😜
ETF Outflows: The Great Exodus!
Meanwhile, a disconcerting symphony of outflows from the spot ETFs in the US has begun to crescendo, the notes echoing ominously through the hallowed corridors of finance.
On the fateful trading day of February 24, the tenebrous forces of the market bore witness to the most substantial outflow from the eleven spot BTC ETFs in a span of seven weeks, a staggering $517 million slipping away into the void, marking five consecutive trading days drenched in outflow streaks. Oh, how the capital has fled!
Among the casualties, the BlackRock fund endured an outflow of $159 million, whilst Fidelity’s Wise Origin Bitcoin Fund suffered a veritable deluge, hemorrhaging a staggering $247 million. And let us not forget the other players—the Bitwise, the Invesco, the VanEck, the WisdomTree, and the Grayscale funds—all succumbing to these modern vicissitudes, as reported by CoinGlass.
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2025-02-25 09:11