Bitcoin big dump. Are hedge fund arbitrage trades the culprits?

Compiled by: 0xjs@Golden Finance

In just one week, the price of Bitcoin has fallen from $99,000 to below $80,000, nearly returning to the price level of Bitcoin before the U.S. presidential election. Crypto analyst Kyle Chassé believes that one major reason for the recent sharp decline in BTC prices is that the arbitrage trading by hedge funds is gradually waning.

The following describes how this arbitrage trade operates - and why the collapse of arbitrage trading can create a ripple effect in the market.

1. For several months, hedge funds have been using BTC spot ETFs and CME futures for low-risk yield trading. The operation works as follows:

• Purchase Bitcoin Spot ETF (BlackRock, Fidelity)
• Shorting BTC futures on CME,
• Earn a price difference with an annualized return of approximately 5.68%, with some even using leverage to increase the return to double digits.

But what about now? This arbitrage trading is collapsing.

2、This trade relies on the BTC futures trading premium being higher than the spot market. However, with the recent market weakness, the premium has significantly decreased. What will the result be?

• This transaction is no longer profitable.
• Funds are being withdrawn on a large scale.
• BTC selling pressure surges.

3. Look at the brutal ETF outflows:

• Over the past week, BTC sold for more than 1.9 billion dollars,
• With the closing of the fund, CME open interest plummets,
• BTC has dropped double digits within a few days, while the same arbitrage trades remained stable during the rise of Bitcoin, and are now accelerating the collapse.

4. Why does this happen?

Because hedge funds do not care about Bitcoin. They are not betting on a Bitcoin surge. They are only seeking low-risk returns.

The trading has now ended, and they are withdrawing liquidity—letting the market free fall.

5. What will happen next?

• Cash and arbitrage will continue to close positions.
• BTC needs to find genuine organic buyers (not just hedge funds extracting profits).
• As leveraged positions continue to be liquidated, volatility will remain high.

6. This is a typical case of a liquidity game.

ETFs have not only brought long-term holders but also hedge funds engaging in short-term arbitrage. Now we are seeing the consequences.

7. Important conclusion?

• We don't know if the suffering has ended, but once these trades are completely closed, the suffering is likely to come to an end.
• The "demand" for ETFs is real, but some of it is purely for arbitrage. The demand for holding BTC is real, just not as much as we imagine.
• This volatility and turbulence will continue until real buyers get involved.

8. Final thoughts:

• Cash and arbitrage liquidations are harsh—but they are necessary.
• ETF capital outflow = more forced selling, but this impact will ultimately prepare for the next round.
• Survive now, accumulate later.
• Pain creates opportunities. Just don't get liquidated.