Bitcoin falls below 90,000 because smart money is fleeing?

Author: Daii Source: mirror

Today's Bitcoin fell below $90,000. Regarding this big drop, I warned in "430 million funds outflow! Bitcoin's dangers and opportunities" on February 19.

Last week, $571 million continued to flow out of the Bitcoin ETF (see the figure below). This was interpreted by the market as smart money fleeing, affecting market sentiment and causing Bitcoin to fall below $92,000 again. However, Markus Thielen, head of research at 10x Research, explained in a report the "real" reason for the outflow of funds last week - it was not the smart money fleeing, but the arbitrage traders leaving the market.

1. Did arbitrageurs leave and cause a sharp drop?

He pointed out that since the launch of the spot Bitcoin ETF in the United States in January 2024, although there has been a net inflow of about US$39 billion, only US$17.5 billion (about 44%) of it belongs to long-term holdings. The remaining 56% of the funds may be related to the arbitrage strategy, that is, investors purchase spot Bitcoin of ETFs and short Bitcoin in the futures market at the same time to profit from the difference between spot and futures prices.

Thielen emphasized that this means that the actual demand for Bitcoin as a long-term asset may be much lower than the media portrays. I don't quite agree with this point, and I will talk about my reasons later.

Thielen believes that the buying and selling of ETFs is mainly driven by funding rates (basis rates), and many investors focus on short-term arbitrage rather than long-term capital appreciation. As funding rates and basis spreads fall, arbitrage opportunities decrease, causing hedge funds and trading firms to stop adding funds to Bitcoin ETFs and begin to unwind positions that no longer provide significant arbitrage opportunities.

The downward trend of the yellow line in the box below - funding rates - seems to confirm Thielen's judgment.

Because everyone thinks that institutional investors have enough information advantages and are smart money, they will follow the selling.

Therefore, we must admit that the continuous and large amount of funds flowing out of the Bitcoin ETF will have a great impact on market sentiment, and it can have a sufficient impact on market sentiment. However, if you control the leverage well, all this will have little impact on you. If not, it will be a devastating blow.

2. How important is it to control leverage?

Such sentiment will naturally provide opportunities for centralized exchanges and market makers to collude to harvest retail investors, so it is not surprising that it fell below 90,000 at once, and it is likely to continue to fall. If you don't borrow when you have the momentum, you will lose it.

As of the time I wrote this article, 560 million long positions have been blown up, and there will be more in the future.

I have always emphasized that large leverage is to give money to centralized exchanges. You must always remember that the pricing power of cryptocurrencies is in centralized exchanges, and these exchanges are opaque and unregulated. If you still have doubts about this, take a look at this article when you have time. English version

Also, be careful not to think that it’s over if it falls below 90,000. Because emotions can be continuously amplified, otherwise no one would be scared to death. It is not impossible to fall below 80,000 or 70,000 again.

However, it’s not all bad news in the market.

3. Centralized exchange Bitcoin reserves hit a new low

Emotions are just emotions, and they can’t change the trend that Bitcoin is entering the mainstream. Among them, there is a fact that deserves your attention. That is:

More Bitcoin is accelerating out of centralized exchanges.

Currently, the BTC spot reserves of centralized exchanges have hit a new low, with only 2.4 million left, setting a new historical low.

Through the breakdown below, we can further find that the exchange with the most outflows is Binance, followed by OKX and Bybit. In the past 7 days, Binance has outflowed $712 million in Bitcoins at once. Based on the price of 95,000 Bitcoins per Bitcoin, about 7,500 Bitcoins have flowed out.

I think there is a strong correlation between more Bitcoin spot outflows and Bitcoin ETF outflows. The outflow of Bitcoin ETFs is not just because there is no money to be made in arbitrage trading, but a considerable part of it has been changed to holding Bitcoin spot. This is thanks to the demonstration of MicroStrategy (MircoStrategy) - now called Strategy.

Because, no matter how low the current Bitcoin ETF management fee is, it still exists, and such costs can be completely eliminated by holding spot.

Looking at the above picture, you will find that the premium opportunities of Bitcoin ETF are getting fewer and fewer, while the discount opportunities below the dotted line are increasing. The ETF dividends originating from GBTC have been almost eaten up and will soon disappear. More institutional investors, unless they have to, are more willing to hold Bitcoin spot rather than ETFs.

Conclusion

It is a very good thing that a large number of Bitcoins have left the exchange.

Because, when the spot Bitcoin trading volume of crypto centralized exchanges is lower than that of ETFs, the pricing power of Bitcoin may be transferred to the stock market, which is now strictly regulated. By then, the various plug-in, U-drawing, and N-drawing situations of harvesting retail investors will be reduced, and your leverage can be larger, but it is best not to exceed two times now.

Remember, at the moment, controlling your desires is an important rule for survival in the crypto dark forest. Only if you are not liquidated, you will have the opportunity to see the day when Bitcoin reaches 42.3 million US dollars.