The entry of institutional investors is both a blessing and a curse for long-term Bitcoin holders.
Since Bitcoin hit a new all-time high on January 20, its price has been suppressed by hedge funds. These funds are profiting from low-risk arbitrage trades involving spot exchange-traded funds (ETFs) and CME futures, once again demonstrating that institutional adoption of crypto assets is not a one-way positive.
Analyst Kyle Chassé analyzed Bitcoin's recent crash in a post on social platform X and drew this conclusion.
"For months, hedge funds have been using Bitcoin spot ETFs and CME futures to engage in low-risk arbitrage trades," Chassé said. Now, this "cash and carry" trade is "collapsing."
This "cash and carry" trade involves buying Bitcoin spot ETFs while short-selling Bitcoin futures on the CME. According to Chassé, this strategy can generate annualized returns of up to 5.68%.
The success of this arbitrage trade has mainly depended on Bitcoin futures prices trading above spot prices (i.e., a futures premium). However, Chassé noted that "this premium has now disappeared due to the recent market weakness."
As this trade is no longer profitable, hedge funds are starting to exit the market, as evidenced by the record outflows from U.S. Bitcoin spot ETFs this week.
"This trade had been stabilizing the market during Bitcoin's upswing, and now it is accelerating Bitcoin's crash," he said. This is happening because "hedge funds don't care about Bitcoin itself. They are not betting on Bitcoin going up, they are simply arbitraging, extracting low-risk returns."
Losses concentrated among "Bitcoin tourists"
On February 27, the Bitcoin selloff accelerated, with the price falling below $79,000, the first time in three months it has dropped below that level.
However, on-chain data shows that these losses are mainly concentrated among **"Bitcoin tourists"**—new traders who have recently entered the market.
According to Glassnode data, 74% of realized losses came from holders who bought Bitcoin within the past month.
However, according to analyst Milkybull Crypto, the unrealized losses from this selloff have already exceeded the levels seen during the FTX collapse. Such a significant decline is usually a strong signal that Bitcoin price has bottomed.
