Will hedge fund sales cause Bitcoin drop to $70,000?
An impending Bitcoin crash hangs over the crypto world like a shadow.
An impending Bitcoin crash hangs over the crypto world like a shadow. For the first time since November, the BTC price has fallen below $87,000, which is causing concern among many investors. The immediate reason for the selling wave is the tariffs that Donald Trump has announced against Mexico and Canada. But why is Bitcoin falling even faster than the traditional stock markets? Another, possibly much larger factor is at play here.
According to crypto expert Arthur Hayes, we can expect an unprecedented sell-off of Bitcoin ETFs, with a total value of tens of billions of dollars. This could have serious consequences for the crypto market and the current bull run in 2025.
Crypto expert sounds the alarm: What's behind the massive Bitcoin ETF sales?
While the cries of “Buy the Dip” are growing louder on crypto Twitter, an experienced Bitcoin investor fears the worst. BitMEX co-founder Arthur Hayes thinks the recent price drop is just the beginning of a much bigger sell-off. In a message on X he writes:
BlackRock's iShares Bitcoin Trust (IBIT) is currently the largest Bitcoin index fund in the world, with a whopping 575,143 BTC under management.
According to Hayes, the hedge funds that have invested billions in Bitcoin ETFs from BlackRock and Fidelity are not long-term investors like companies like Strategy or Metaplanet. Instead, they are pure traders seeking profit maximization. He therefore warns. That means the selling pressure on Bitcoin ETFs is far from over.
Bitcoin ETFs already in a vulnerable position
Even before the current correction, US spot ETFs were in a difficult phase. After an impressive 18-week run where they saw $29 billion in net inflows, they lost nearly $1 billion in the last two weeks of trading.
Hayes had previously warned that the bull market would not end without a major correction. He predicted that the price would fall back to $70,000 to $75,000 – a healthy correction according to Bitcoin's historical patterns.
How Hedge Funds Make Profits With Bitcoin ArbitrageThe strategy hedge funds use is known as 'basic arbitrage'. They try to profit from the difference between the spot price of Bitcoin (as reflected in the ETFs) and the price of Bitcoin futures on the Chicago Mercantile Exchange (CME).
These funds are not interested in long-term ownership of Bitcoin. Instead, they exploit the price difference between the spot market and the futures market to make a profit.
But as the Bitcoin price falls, the futures premium also shrinks. This puts hedge funds in a difficult position. To avoid losses, they start reducing their positions by:
- Sell their Bitcoin ETF shares
- Buy back their short positions on CME futures
When this happens en masse, a negative spiral arises: the sale of ETFs pushes the Bitcoin price further down, which in turn leads to new forced sales.
Hedge funds dominate the Bitcoin ETF market
data shows that hedge funds control a large share of the Bitcoin ETF market. Major players such as Jane Street, Millennium Management, Brevan Howard and Capula have invested billions in Bitcoin ETFs. But if they leave en masse, it could trigger a wave of liquidations.
According to a report by Markus Thielen, principal researcher at 10X Research, as much as 56% of total inflows into Bitcoin ETFs are linked to arbitrage strategies. That amounts to approximately $21.6 billion.
Still, Thielen thinks that the effect of this on the market will ultimately be neutral, because hedge funds are also buying Bitcoin futures in addition to their ETF sales.
What does this mean for the Bitcoin bull run?
Earlier this month, Trump's announced import duties on Mexico and Canada caused a broader crypto correction. Now that the American president is actually carrying out his threats, the market seems to be faltering again.
In addition, the recent correction may shake doubters out of the market. The Bitcoin price has now fallen below the cost price of 'Short Term Holders' (92,500 dollars), which may cause panic sellers to drop out permanently. Although painful in the short term, this can actually be positive in the long term.A similar situation occurred in April last year, when Bitcoin fell to $58,000 from a record high of $73,000. In retrospect, this turned out to be a perfect buying opportunity.
Right now, Bitcoin's historic bottom is around $71,600, close to the price Hayes predicts as a result of the hedge fund liquidations.
Whether the Bitcoin price will actually drop to this level remains to be seen. But one thing is certain: long-term Bitcoin holders have been able to benefit from corrections like this time and time again in the past.
