Author: Daii Source: mirror
Today, Bitcoin fell below $90,000. Regarding this major decline, I had warned about it in my article "4.3 Billion Outflows! The Risks and Opportunities of Bitcoin" on February 19.
Last week, $571 million continued to flow out of Bitcoin ETFs (see the chart below). This was interpreted by the market as smart money fleeing, which affected market sentiment and was a catalyst for Bitcoin to fall below $92,000 again. However, Markus Thielen, the research director at 10x Research, explained the "real" reason for the capital outflows last week in a report - it was not smart money fleeing, but rather arbitrage traders exiting their positions.
1. Did Arbitrage Traders Exiting Cause the Crash?
He pointed out that since the launch of the U.S. spot Bitcoin ETF in January 2024, while there has been a net inflow of about $39 billion, only $17.5 billion (about 44%) of that is from long-term holders. The remaining 56% of the capital may be related to arbitrage strategies, where investors buy the spot Bitcoin in the ETF and simultaneously short Bitcoin in the futures market to profit from the price difference.
Thielen emphasized that this means the actual demand for Bitcoin as a long-term asset may be far lower than the media has portrayed. I don't fully agree with this point, and I'll explain my reasons later.
Thielen believes that ETF trading is primarily driven by the funding rate (basis rate), and many investors are focused on short-term arbitrage rather than long-term capital appreciation. As the funding rate and basis spread have declined, arbitrage opportunities have diminished, causing hedge funds and trading firms to stop adding more capital to Bitcoin ETFs and start unwinding positions that no longer offer attractive arbitrage opportunities.
The downward trend of the funding rate shown in the chart below seems to validate Thielen's assessment.
This is because everyone assumed that institutional investors, being information-advantaged and smart money, would follow suit and sell.
So, we have to acknowledge that the persistent and large outflows from Bitcoin ETFs will have a significant impact on market sentiment, and can indeed influence market sentiment significantly. However, if you can control your leverage, this will have little impact on you. If you can't, it can be devastating.
2. How Important is Controlling Leverage?
This sentiment naturally also provides an opportunity for centralized exchanges and market makers to collude and harvest retail traders, so it's not surprising that it crashed below $90,000 and may continue to decline further. There's no harm in borrowing if you have the power.
As of the time I wrote this article, $560 million in long positions have been liquidated, and there will likely be more to come.
I've always emphasized that high leverage is just giving money to centralized exchanges. You must always remember that the pricing power of cryptocurrencies is now in the hands of centralized exchanges, which are opaque and unregulated. If you're still doubtful about this, you can take a look at this article. English version
Also, be very careful not to think that it's all over just because it's fallen below $90,000. Sentiment can be continuously amplified, otherwise there wouldn't be people who get scared to death. Another drop below $80,000 or $70,000 is not impossible.
However, it's not all bad news in the market.
3. Centralized Exchange Bitcoin Reserves Hit New Lows
Sentiment is just sentiment and does not change the trend of Bitcoin entering the mainstream. There is one fact worth noting:
More Bitcoin is accelerating its outflow from centralized exchanges.
Currently, the spot Bitcoin reserves of centralized exchanges have hit a new low, with only 2.4 million BTC left, a new historical low.
By further breaking down the chart, we can see that the exchanges with the largest outflows are Binance, followed by OKX and Bybit. Over the past 7 days, Binance has seen an outflow of $712 million worth of Bitcoin, which is about 7,500 BTC at $95,000 per coin.
I believe the increased outflow of spot Bitcoin is strongly correlated with the outflow from Bitcoin ETFs, and a significant portion of the ETF outflows have been converted to holding spot Bitcoin. This is thanks to the demonstration effect of MicroStrategy (now called Strategy).
Because no matter how low the management fees of current Bitcoin ETFs are, there is still a cost, which can be completely eliminated by holding the spot asset.
Looking at the chart above, you'll find that the premium opportunities for Bitcoin ETFs are diminishing, while the discounted opportunities below the dotted line are increasing. The ETF dividend originating from GBTC has been largely consumed, and will soon disappear. More institutional investors, unless absolutely necessary, are more willing to hold spot Bitcoin rather than ETFs.
Conclusion
The large outflow of Bitcoin from exchanges is a very good thing.
Because when the trading volume of spot Bitcoin on centralized crypto exchanges falls below that of ETFs, the pricing power of Bitcoin may shift to the stock market, which is now under strict regulation. At that time, the various needle-threading, U-drawing, and N-drawing tactics to harvest retail traders will be reduced, and you can leverage a bit more, but for now, it's best not to exceed 2x.
Remember, at this time, controlling your desires is an important rule for survival in the crypto dark forest. Only by avoiding liquidation can you have a chance to see Bitcoin reach $42.3 million.
