Bitcoin's plunge to $70,000 was encouraged by Arthur Hayes, attributed to an ETF panic run.
Bitcoin: Giant Sell-Off Imminent? 📉
Brace yourself for a possible Bitcoin plunge to $70,000! That's according to Arthur Hayes, former BitMEX CEO, who foresees a catastrophic sell-off if hedge funds liquidate their positions in spot-based Bitcoin ETFs.
Here's the lowdown: Many hedge funds have been engaged in a sneaky strategy, going long on ETF shares while short on CME future contracts. This allows them to profit from the "basis spread" - the difference between the two positions. As long as this strategy yields more than what they'd earn from short-term US treasuries, it stays appealing to these speculative scamps.
However, if this basis disappears with a Bitcoin price drop, these funds will be left scrambling to liquidate their ETF and futures positions. This mass sell-off would create a brutal storm on the Bitcoin market.
In the past, the demand for Bitcoin ETFs has been greatly influenced by arbitrage hedge funds. If the price of the underlying Bitcoin falls, it triggers a decrease in the premium of futures contracts. This results in the sale of ETFs, which intensifies the pressure on the derivatives market. This vicious cycle leads to a downward spiral on the spot market, forming a self-feeding negative feedback loop
- The upcoming Bitcoin plunge, as foreseen by Arthur Hayes, could be triggered if hedge funds, currently profiting from the difference between ETF shares and CME future contracts, are forced to sell their ETF and futures positions due to a disappearing basis spread, thus starting a swift sell-off in the Bitcoin finance sector.
- With the potential Bitcoin plunge, investors may want to reassess their investment strategies in the Bitcoin finance market, considering the instability that could arise from the liquidation of hedge funds' positions in Bitcoin ETFs, given the significant influence these funds have historically had on the demand for Bitcoin ETFs and the potential negative feedback loop it creates in the technology sector.
