Bitcoin big dump Hedging fund Arbitrage trading is the culprit?

Question

Compiled by: 0xjs@Golden FinanceIn a week, the price of Bitcoin fell from $99,000 to below $80,000, almost reverting to the price level before the U.S. election. Crypto analyst Kyle Chassé believes that one major reason for the recent sharp decline in BTC prices is the gradual fading of arbitrage trading by hedge funds.The following explains how this arbitrage trading operates— and why the collapse of arbitrage trading can create shockwaves in the market.1. For several months, hedge funds have been using BTC spot ETFs and CME futures to engage in low-risk yield trading. The operation works as follows:* Purchase Bitcoin Spot ETF (BlackRock, Fidelity)* Short BTC futures on CME,* Earn a spread with an annualized return rate of about 5.68%, with some even using leverage to boost the return rate to double digits.But what about now? This arbitrage trade is collapsing.2、**This trade relies on the BTC futures premium being higher than the spot. However, with the recent market weakness, the premium has dropped significantly.** What will be the outcome?* This transaction is no longer profitable.* Capital is exiting on a large scale.* BTC selling pressure surges.3. Look at the brutal ETF outflow:* Over the past week, BTC sold for more than 1.9 billion dollars,* With the fund liquidation, CME open interest plummeted,* BTC has dropped double digits within a few days, and the same arbitrage trades remained stable during the rise of Bitcoin, but are now accelerating the crash.**4. Why is this happening?**Because hedge funds don't care about Bitcoin. They are not betting on a Bitcoin surge. They are just 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 attracted long-term holders but also hedge funds engaging in short-term arbitrage. Now we are seeing the consequences.7. Important conclusion?* We do not know if the pain has ended, but once these trades are fully closed, the pain is likely to end.* The "demand" for ETFs is real, but some of it is purely for arbitrage. The demand for holding BTC is real, it's just not as much as we imagine.* This volatility and turmoil will continue until real buyers intervene.8. Final Thoughts:* Cash and arbitrage liquidations are brutal - but they are also necessary.* ETF capital outflows = 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.