PANews reported on February 28 that Matrixport stated in its latest weekly report that as Wall Street fully accepts Bitcoin, Bitcoin ETFs are increasingly affected by global liquidity, macroeconomic conditions, central bank policies, and institutional capital flows. The strengthening of the U.S. dollar has led to a decline in this liquidity indicator, which suggests that Bitcoin prices may be under downward pressure. Global liquidity peaked at the end of December 2024, and the sharp strengthening of the U.S. dollar provides a clear explanation for Bitcoin's continued pullback. Looking ahead, the forward-looking characteristics of this time series suggest that once this pullback ends (which may last until March or April), Bitcoin may try to return to its previous highs.
There are two types of Wall Street investors entering the Bitcoin market. One is wealth and asset managers, who likely represent a group of wallets holding 100-1,000 Bitcoins, which have become the largest Bitcoin holders, surpassing the once-dominant whale wallets. The second type of Wall Street investors entering the Bitcoin market are hedge funds, who focus on non-directional returns through arbitrage strategies rather than betting on long-term gains in Bitcoin prices. When crypto traders are bullish, they often use futures positions to push up funding rates, which provides arbitrage opportunities for hedge funds, who short sell Bitcoin futures while buying Bitcoin spot or Bitcoin ETFs, thereby earning income through the difference in funding rates.
These hedge funds hold a combined $10 billion in Bitcoin ETFs, while total inflows have reached $39 billion, suggesting that at least 25% of Bitcoin ETF funds are related to carry trades. Based on our calculations, 55% or more of ETF inflows may be coming from hedge funds focused on carry rather than investors who truly believe in Bitcoin's long-term upside potential. With the sharp decline in profit opportunities since the December FOMC meeting, and the accompanying decline in trading volume, it is not surprising that hedge funds have begun to unwind carry positions. This trend is reflected in record outflows from Bitcoin ETEs, as these funds exit trades that are no longer profitable.
