Matrixport: Hedge Fund Unwinding Arbitrage Positions Causes Recent Dip, with at Least 25% of ETF Funds Tied to Arbitrage

BlockBeats News, February 28th, Matrixport released a daily analysis report stating that the Bitcoin ETF has achieved tremendous success, attracting $39 billion in inflows in fourteen months. However, as Wall Street fully embraces Bitcoin, it is increasingly influenced by global liquidity, macroeconomic conditions, central bank policies, and institutional capital flows. The strength of the dollar has led to a decrease in this liquidity metric, indicating that the Bitcoin price may face downward pressure. Global liquidity peaked by the end of December 2024, and the significant strengthening of the dollar provides a clear explanation for Bitcoin's ongoing pullback. Looking ahead, the forward-looking nature of this time series suggests that once this pullback ends (which may last until March or April), Bitcoin may attempt to retest previous highs. Analyzing macroeconomic trends and central bank policies gives us a distinct advantage in forecasting Bitcoin price trends. Particularly as Wall Street investors begin to daily monitor these macro factors and actively engage in Bitcoin trading, this analysis becomes especially crucial.

Wall Street investors entering the Bitcoin market are divided into two categories. One is wealth and asset managers who see Bitcoin as digital gold and a long-term investment. These investors likely represent the group of wallet holders with 100-1000 Bitcoins, which has become the largest group of Bitcoin holders, surpassing the once dominant whale wallets.

The second category of Wall Street investors entering the Bitcoin market is hedge funds, who focus on non-directional income through arbitrage strategies rather than betting on Bitcoin's long-term price appreciation. When crypto traders are bullish, they often exploit futures positions to raise the funding rate. This provides arbitrage opportunities for hedge funds, which short Bitcoin futures while simultaneously buying Bitcoin spot or Bitcoin ETF, thus earning profits through the funding rate difference. These hedge funds collectively hold $10 billion in Bitcoin ETF, and the total inflow has reached $39 billion, indicating that at least 25% of the Bitcoin ETF funds are related to arbitrage trading. Based on calculations, 55% or more of the ETF inflows may come from arbitrage-focused hedge funds, rather than investors who truly believe in Bitcoin's long-term growth potential.

Since the December FOMC meeting, yield opportunities have significantly decreased, followed by a decline in trading volume, so it's not surprising that hedge funds are unwinding arbitrage positions. This trend is manifested through record outflows from Bitcoin ETFs, as these funds exit unprofitable trades.