Key Insights
Why is BlackRock leading ETF outflows?
According to Hayes, hedge funds are selling off their BTC positions as the basis trade weakens.
What’s the market pivot he anticipates?
An improvement in liquidity conditions in early December could boost risk assets and propel BTC to $200k, as per his analysis.
Bitcoin’s institutional outflows have persisted for the fourth consecutive week, accelerating the ongoing sell-off.
During November, $2.59 billion has exited U.S. spot BTC ETFs, with half of the outflows ($1.26 billion) driven by investors in BlackRock’s IBIT.
Source: SoSo Value
Future of BTC amid hedge fund exodus
According to Arthur Hayes, founder of BitMEX, the BlackRock outflow was primarily driven by hedge funds like Goldman Sachs seeking higher yields above Fed rates through BTC basis trade.
This involves purchasing spot BTC ETFs and shorting the asset on CME to capture the spread (basis trade).
However, with the basis trade losing its appeal, hedge funds holding spot BTC ETFs have exited their positions, noted Hayes.
Source: Glassnode
Since October, the yield has dropped from around 14% to below 5%, leading to intensified ETF outflows driven by hedge funds and unsettling retail investors, highlighted Hayes.
“Retail now perceives these same investors as bearish on Bitcoin, creating a negative cycle that prompts them to sell, reducing the basis, and ultimately causing more institutional investors to divest from the ETF.”
Treasury demand and liquidity shifts
Moreover, demand from BTC treasuries has waned, reinforcing concerns that major players are adopting a cautious stance.
Hayes pointed out that dollar liquidity has also contracted and might be reintroduced by December as the Fed concludes Quantitative Tightening (QT).
Source: Bloomberg/Arthur Hayes (Treasury General Account, TGA balance)
The Treasury General Account (TGA) is the primary operating account of the U.S. government and directly impacts market liquidity.
An increase in TGA balance leads to liquidity drains as the Treasury withdraws more funds from the market, while a decrease enhances liquidity.
Hayes noted a rise in TGA in late October that deepened the market downturn, particularly affecting risk assets.
Hayes predicted a potential drop in BTC towards $80k-$85k in the short term before a surge to $200k by year-end, contingent on easing liquidity.
Meanwhile, Hayes expects the privacy narrative, spearheaded by Zcash [ZEC], to remain robust despite broader market weakness. In fact, he has shifted his focus from altcoins to ZEC.
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