With the approval of BTC spot ETF and its strong capital absorption, Wall Street has fully accepted BTC, and BTC is increasingly affected by global liquidity, macroeconomic conditions, central bank policies and institutional capital flows. In addition to macro factors, black swan events and other factors, the capital flow of arbitrage funds is also an important influencing factor in this BTC price correction.
BTC price drop may be affected by hedge funds unwinding arbitrage positions
Currently, there are two different types of Wall Street investors entering the BTC market.
Wealth and asset managers.
Hedge Funds Focusing on Non-Directional Returns
Wealth and asset managers view BTC as digital gold and a long-term investment. This group of people may represent the group of wallets holding 100-1,000 BTC and become the largest type of Bitcoin holder, surpassing the previously dominant whale wallets.
Hedge funds that focus on non-directional returns use arbitrage strategies instead of betting on the long-term rise in BTC prices. When bullish, they usually use futures positions to push up funding rates. This creates an arbitrage opportunity where hedge funds short BTC futures and simultaneously buy BTC spot or BTC ETFs, thereby capturing the funding rate difference as income.
According to statistics, these hedge funds hold a total of $10 billion in BTC ETFs, with a total inflow of $39 billion, which means that at least 25% of BTC ETF capital is related to arbitrage trading. Since the FOMC meeting in December last year, the profit opportunities have decreased significantly, and the trading volume has also decreased accordingly. Therefore, it is not surprising that hedge funds are unwinding arbitrage positions. This is reflected in the record outflow of funds from BTC ETFs, and these funds exit trades that are no longer profitable.
Reciprocal tariffs, taxes and spending cuts could add to inflationary pressures and weaken U.S. economic growth
Economic data on Thursday showed that U.S. economic growth slowed in the fourth quarter and further cooled in the first quarter of this year. The U.S. Department of Commerces Bureau of Economic Analysis (BEA) said in its second GDP estimate report for the fourth quarter that the annualized figure of U.S. gross domestic product (GDP) in the fourth quarter grew by 2.3%, while GDP in the third quarter accelerated at a rate of 3.1%, and GDP growth in the fourth quarter slowed significantly from the previous quarter.
Separate data showed that the U.S. existing home sales index fell to a record low in January, as rising mortgage rates and house prices weakened the purchasing power of potential buyers. Market concerns about the U.S. economy have clearly worsened, as reciprocal tariffs, taxes and spending cuts could increase inflationary pressures and weaken economic growth.
Nvidias earnings report exceeded expectations but still failed to reverse the decline of technology stocks, and market sentiment was bleak
On Wednesday, Eastern Time, Nvidia announced fourth-quarter revenue and earnings that exceeded market expectations, but still failed to reverse the downward trend of technology stocks. The market view is that Nvidias performance is good, but it did not significantly alleviate investors concerns that AI companies profits may not be as strong as expected.
On Thursday, U.S. stocks closed lower, with the Nasdaq falling below key support levels and the SP 500 erasing gains since the U.S. election. Large technology stocks fell across the board, with Nvidia down 8.5%, Tesla down more than 3%, Amazon down more than 2%, Google down more than 2%, Facebook down more than 2%, Microsoft down more than 1%, and Apple down more than 1%. New York gold futures fell about 1.5%, once falling below $2,880; oil prices posted their biggest gain in six weeks.
Disclaimer: The market is risky and investment should be cautious. This article does not constitute investment advice. Digital asset trading can be extremely risky and unstable. Investment decisions should be made after carefully considering personal circumstances and consulting financial professionals. Matrixport is not responsible for any investment decisions based on the information provided in this content.
