Hedge Funds’ Popular Bitcoin Trade Faces Decline Amid Market Pressures
Hedge funds are withdrawing from Bitcoin ETFs, causing outflows of $2.3 billion and leading to a decline in Bitcoin prices below $86,000. The once successful arbitrage strategy is faltering due to shrinking demand for CME Bitcoin futures and macroeconomic pressures. Analysts predict further market challenges ahead.
The Bitcoin trade favored by hedge funds is showing signs of decline, as the attractive arbitrage opportunities have diminished. Investors in Bitcoin exchange-traded funds (ETFs) are rapidly liquidating their holdings, resulting in significant outflows totaling $2.3 billion. This trend has contributed to Bitcoin’s price dropping below $86,000, raising concerns about an impending capitulation in the market.
Once a favored strategy among traders, the market-neutral basis trade capitalized on price discrepancies between short-term CME Bitcoin futures and the spot price of Bitcoin. Last year, this strategy flourished, particularly in the final months of 2024, as demand for CME Bitcoin futures surged to $23 billion, while Bitcoin’s value increased over 60% to reach a peak of $109,000.
However, since its mid-December peak, demand for CME Bitcoin futures has decreased by 25%, and the spread between futures and spot prices has narrowed significantly, reaching its lowest since September 2023. Additionally, macroeconomic challenges, including remarks from Federal Reserve leadership regarding sustained high interest rates and pressures on consumer demand from major companies, have contributed to this market downturn.
In summary, the hedge fund-driven arbitrage strategy involving Bitcoin ETFs is experiencing significant challenges as demand has waned and outflows have skyrocketed. This selloff is contributing to Bitcoin’s decline, leading to concerns about a broader market capitulation. Analysts predict that this downward trend could continue as trading dynamics change and macroeconomic pressures mount.
Original Source: www.dlnews.com
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