Matrixport: It's not Wall Street that influences the adjustment of the cryptocurrency market, but hedge funds

PANews reported on February 28 that Matrixport stated in its latest weekly report that as Wall Street fully embraces Bitcoin, the Bitcoin ETF is increasingly influenced by global liquidity, macroeconomic conditions, central bank policies and institutional capital flows. The strengthening of the dollar has led to a decrease in this liquidity indicator, indicating that the price of Bitcoin may be under downward pressure. Global liquidity peaked at the end of December 2024, and the significant strengthening of the dollar provides a clear explanation for Bitcoin's continuous correction. Looking forward to the future, this time series' forward-looking features suggest that once this correction ends (which could last until March or April), Bitcoin may attempt to rebound to previous highs.

Wall Street investors entering the bitcoin market are divided into two categories. One type is wealth and asset managers who likely represent wallet groups holding 100-1000 bitcoins; these people have become the largest holders of bitcoin surpassing whale wallets which used to dominate. The second type of Wall Street investor entering the bitcoin market are hedge funds; they focus on non-directional returns through arbitrage strategies rather than betting on long-term increases in bitcoin prices. When crypto traders are bullish, they usually use futures positions to push up funding rates providing arbitrage opportunities for hedge funds who short sell bitcoin futures while buying spot bitcoins or bitcoin ETFs thereby earning profits from funding rate differences.

These hedge funds collectively hold $10 billion worth of Bitcoin ETFs with total fund inflows reaching $39 billion indicating at least 25% of Bitcoin ETF funds are related to arbitrage trading. According our calculations more than 55% or more ETF fund inflows might come from hedge funds focusing on arbitrage rather than investors truly believing in Bitcoins long term potential rise Since FOMC meeting last December there has been a sharp decline in profit opportunities followed by a drop in trading volume so it’s not surprising that hedge funds began unwinding their arbitrage positions This trend is reflected in the record outflows of Bitcoin ETFs as these funds exited trades that were no longer profitable.