The US Bitcoin Exchange-Traded Funds (ETFs) have witnessed historic inflows, marking 17 consecutive days of net additions. On one particularly notable Tuesday, these ETFs recorded inflows totaling a whopping $886.6 million, marking the second-highest single-day inflows since their inception.
This was followed yesterday by another significant day of inflows, amounting to $488.1 million, with notable contributions from major financial players such as Fidelity ($220.6 million), Blackrock ($155.1 million) and Ark ($71.4 million ). Despite these heavy capital injections, Bitcoin’s price has shown a relatively muted response, moving from $68,000 to $71,000 since the beginning of the week.
The subdued price movement in the face of substantial ETF inflows has confused many market participants and analysts. Normally, such inflows are expected to put stronger upward pressure on Bitcoin prices. However, the observed price dynamics indicate that other countervailing factors may be at play.
Why isn’t the Bitcoin price going higher?
Crypto trading analysis platform The Kingfisher offered a explanation via a message on X, suggesting that a carry trade strategy could influence price dynamics. According to their analysis: “BTC ETF inflows didn’t impact the price as much as you hoped? This could be due to loading a carry trade. Short futures + buy spot/ETF.”
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A carry trade in this context involves shorting Bitcoin futures while simultaneously buying spot Bitcoin or Bitcoin ETF shares. This strategy can hedge against potential price volatility and exploit discrepancies between futures prices and spot prices.
JJ the Janitor (@JLabsJanitor) continues elaborated about the mechanisms of the strategy. Drawing parallels to the behavior visualized on the PANDA Terminal charts, he explained: “When the big guys want the BTC spot filled, they sell futures contracts to bid up the price. When they are filled + ready to let it rip, they close those shorts, hence the inverse correlation on True Open Interest (OI).”
His comments indicate strategic market manipulations that, while legal, blur the lines between smart investment tactics and potential ethical concerns. His follow-up tweet: “Market manipulation or smart investment strategy…what’s the difference?” challenges the narrative by questioning the ethical implications of such strategies.
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The discussion led to further research from the crypto community. X user Sahra criticized the practical implementation of the carry trade, noting: “Carry trade should naturally suppress financing rates. The pressure on the long spot against the perpetual rate should, in theory, cause the perpetual rate to fall (all else being equal), as the perpetual rate would continue to lag the spot market. Everything else makes sense, but these rates are way too low to justify a carry IMO.”
This comment highlights the complexity of carry trades, where expected outcomes, such as suppressed financing rates, are not in line with market observations, suggesting that other forces could be influencing the market.
The Kingfisher responded to Sahra’s skepticism, acknowledging the anomaly: “That’s true, but the funding remains quite positive. This suggests that while there is a carry trade at play, it is not the dominant force in the market. Other factors, such as bullish sentiment or other buying pressure, could offset the expected downward pressure on financing rates from the carry trade.”
At the time of writing, BTC was trading at $70,803.
Featured image created with DALL·E, chart from TradingView.com