Matrixport Research: The decline in BTC price may be influenced by hedge funds unwinding arbitrage positions

As the BTC spot ETF is approved and attracts strong capital inflow, Wall Street fully embraces BTC, which is increasingly influenced by global liquidity, macroeconomic conditions, central bank policies, and institutional capital flows. The recent BTC price correction is significantly affected not only by macro elements and black swan events but also by the capital flow of arbitrage funds.

BTC Price Decline May Be Influenced by Hedge Funds Closing Arbitrage Positions

Currently, there are two different types of Wall Street investors entering the BTC market.

• Wealth and asset management professionals.

• Hedge funds focusing on non-directional returns.

Wealth and asset management professionals view BTC as digital gold and a long-term investment. This group may represent wallets holding 100 to 1,000 BTC and has become the largest type of Bitcoin holder, surpassing the previously dominant whale wallets.

Hedge funds focusing on non-directional returns utilize arbitrage strategies rather than betting on the long-term rise of BTC prices. When bullish, they typically use futures positions to drive up funding rates. This creates an arbitrage opportunity where hedge funds short BTC futures while buying BTC spot or BTC ETFs to capture the funding rate difference as profit.

Statistics show that these hedge funds collectively hold $10 billion in BTC ETFs, with total inflows reaching $39 billion, indicating that at least 25% of BTC ETF capital is related to arbitrage trading. Since the FOMC meeting last December, profit opportunities have significantly decreased, leading to a decline in trading volume. Therefore, it is not surprising that hedge funds are unwinding arbitrage positions. This is reflected in the record outflows from BTC ETFs, as these funds exit unprofitable trades.

Tariffs, Taxes, and Spending Cuts May Increase Inflationary Pressures and Weaken U.S. Economic Growth

Economic data released this Thursday shows that U.S. economic growth slowed in the fourth quarter, with further cooling expected in the first quarter of this year. The U.S. Department of Commerce's Bureau of Economic Analysis (BEA) stated in its second GDP estimate for the fourth quarter that the annualized GDP growth for the fourth quarter was 2.3%, down from a 3.1% growth rate in the third quarter, indicating a significant slowdown in quarter-on-quarter GDP growth.

Another report indicated that the index of pending home sales in the U.S. fell to a record low in January, as rising mortgage rates and increasing home prices weakened the purchasing power of potential buyers. Tariffs, taxes, and spending cuts may increase inflationary pressures and weaken economic growth, raising market concerns about the worsening sentiment regarding the U.S. economy.

Nvidia's Earnings Report Exceeds Expectations but Fails to Reverse Decline in Tech Stocks, Market Sentiment Remains Gloomy

On Wednesday, Eastern Time, Nvidia reported fourth-quarter revenue and earnings that exceeded market expectations, yet it could not reverse the downward trend in tech stocks. Market sentiment suggests that while Nvidia's performance was good, it did not significantly alleviate investor concerns that AI companies' earnings may not be as strong as expected.

On Thursday, U.S. stocks closed lower, with the Nasdaq breaking through key support levels, and the S&P 500 erasing gains since the U.S. elections. Major tech stocks fell across the board, with Nvidia down 8.5%, Tesla down over 3%, Amazon down over 2%, Google down over 2%, Facebook down over 2%, Microsoft down over 1%, and Apple down over 1%. New York futures gold fell about 1.5%, briefly dipping below $2880; oil prices saw the largest increase in six weeks.

Disclaimer: The market carries risks, and investment should be approached with caution. This article does not constitute investment advice. Trading in digital assets may involve significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. Matrixport is not responsible for any investment decisions made based on the information provided herein.