Arthur Hayes, co-founder of BitMEX and Chief Investment Officer at Maelstrom, has warned that Bitcoin’s price could drop as low as $70,000 due to ongoing bearish momentum. This comes as Bitcoin recently hit a three-month low of $88,273, its lowest point since mid-November. Hayes explained on social media that institutional investors have been focusing on spot Bitcoin ETFs like BlackRock’s IBIT to earn higher returns by leveraging the basis between ETF prices and futures contracts. This long ETF-short futures approach could lead to a potential sell-off of ETFs and buying back of CME futures, triggering a price drop for Bitcoin.
Hayes cautioned that if the yield basis between ETFs and futures contracts narrows further, hedge funds could unwind their positions during US hours, causing the price of Bitcoin to drop. This warning is in line with the ongoing trend of outflows from US-based spot Bitcoin ETFs, with products experiencing outflows totaling $560 million last week due to economic uncertainty. Fidelity’s FBTC saw significant outflows of $246.96 million, followed by BlackRock’s IBIT with $158.59 million in redemptions. Other investment products like Grayscale’s GBTC, Invesco Galaxy’s BTCO, and VanEck’s HODL also experienced notable outflows.
The outflows from Bitcoin ETFs continued into the new week, with data showing that spot Bitcoin ETFs collectively saw $516.41 million in outflows on Feb. 24, the second-highest single-day outflow recorded this year. Grayscale’s mini Bitcoin Trust, WisdomTree’s BTCW, and Bitwise’s BITB all recorded outflows ranging from $6.25 million to $12.5 million. VanEck’s HODL experienced outflows of $7.33 million, while Invesco Galaxy’s BTCO saw withdrawals of $15.02 million. This trend of outflows from Bitcoin ETFs could contribute to further downward pressure on Bitcoin’s price in the coming days.
The shift towards spot Bitcoin ETFs by institutional investors is driven by the desire to earn higher returns by leveraging the basis between ETF prices and futures contracts. The long ETF-short futures approach allows hedge funds to manage risk or gain exposure to an asset class while minimizing downside potential. However, if the yield basis between ETFs and futures contracts narrows further, these funds may unwind their positions by selling ETFs and buying back CME futures, potentially triggering a price drop for Bitcoin. This strategy could lead to a further decline in Bitcoin’s price if institutional investors decide to realize their profits and exit their positions.
