Key Takeaways
Why is BlackRock leading ETF outflows?
According to Hayes, hedge funds are liquidating their BTC positions as base trading declines.
What is the pivot he sees for the market?
According to him, an improvement in liquidity conditions in early December could deplete risky assets and push BTC to $200,000.
Bitcoins [BTC] Institutional flows have remained negative for the fourth week in a row, further accelerating the ongoing sell-off.
So far in November, $2.59 billion has left US BTC ETFs, with half of the outflows ($1.26 billion) driven by BlackRock’s IBIT investors.
Source: SoSo value
What’s next for BTC now that the hedge funds are getting out
According to Arthur Hayesfounder of BitMEX, BlackRock’s breakout mainly came from hedge funds, such as Goldman Sachs, looking for additional returns above the Fed rate through BTC basis trading.
It involves buying spot BTC ETFs and shorting the assets on CME to capture the spread (basic trading).
However, now that basic trading is no longer attractive, hedge funds with spot BTC ETFs have exited their positions, Hayes noted.
Source: Glassnode
Since October, interest rates have shrunk from around 14% to less than 5%. And with that, ETF outflows led by hedge funds increased, further frightening retail investors, Hayes said.
“Now the retail industry believes these same investors don’t like Bitcoin and creates a negative feedback loop that drives them to sell, which shrinks the base, ultimately causing more institutional investors to sell the ETF.”
Demand for government bonds and liquidity shifts
Moreover, BTC government bond demand has also declined, further reinforcing near-term concerns that major players are taking a wait-and-see approach.
Hayes highlighted that dollar liquidity has also retreated and could be reinjected in December when the Fed ends quantitative tightening (QT).
Source: Bloomberg/Arthur Hayes (General Treasury account, TGA balance)
The Treasury General Balance (TGA) is the U.S. government’s most important operating account and has a direct impact on market liquidity.
An increase in the TGA balance leads to a shortage of liquidity because the Treasury withdraws more money from the market, while a reduction increases liquidity.
According to the chart shared by Hayes, there was a rise in the TGA in late October that further deepened the market, especially for risky assets.
Hayes predicted that BTC could slide to $80,000-$85,000 in the near term before rising to $200,000 by the end of the year, depending on easing liquidity.
In the meantime, Hayes expected the privacy story, led by Zcash [ZEC]to remain strong despite broader weakening. In fact, he dumped most altcoins for ZEC.