- IBIT investors are hedge funds that outperformed short-term US Treasury yields on a low-risk basis.
- Rather from being long-term investors, a large portion of the demand for Bitcoin ETFs comes from hedge funds engaging in this arbitrage game.
If big hedge funds pull out of US Bitcoin exchange-traded funds, BitMEX co-founder Arthur Hayes predicts the price of bitcoin may drop below $70,000. According to what Hayes mentioned on X on February 24, there may be significant withdrawals from spot Bitcoin ETFs like the BlackRock iShares Bitcoin Trust (IBIT) as a “goblin town” is on its way.
He elaborated that many IBIT investors are hedge funds that outperformed short-term US Treasury yields on a low-risk basis by going long on ETFs and shorting CME futures. Moreover, he did say that these funds would sell IBIT and repurchase CME futures if the yield, which is known as the “basis spread,” decreases in tandem with the price of Bitcoin.
Further Bitcoin Decline Likely on the Cards
Hayes predicted that Bitcoin’s price will fall back to $70,000 as these funds “will unwind during US hours and realize their profit” due to the fact that the basis spread is near to Treasury yields. Rather from being long-term investors, a large portion of the demand for Bitcoin ETFs comes from hedge funds engaging in this arbitrage game, according to an investor note published on February 23 by 10x Research head Markus Thielen.
By comparing the current price of Bitcoin as monitored by exchange-traded funds (ETFs) like IBIT with the price of Bitcoin futures on CME, this “basis trade” hopes to profit from the difference. The futures premium shrinks as Bitcoin’s price falls, which causes hedge funds to unwind their strategies by selling Bitcoin ETF shares and purchasing back short CME futures.
Massive selling of spot ETFs and rising pressure on futures are the results of a coordinated unwind when this occurs on a large scale. The farther funds rush to sell their Bitcoin holdings, the more the price drops, which might lead to a feedback cycle.
Meanwhile, US spot ETF outflows have begun to pick up speed. Following a five-day losing trend, the eleven spot Bitcoin ETFs had their worst outflow in seven weeks on February 24th, with $517 million leaving the market overall.
Highlighted Crypto News Today:
Metaplanet and El Salvador Buy More Bitcoin Amid Market Crash
