The cryptocurrency market is facing significant downturns, with Bitcoin trading at critical levels around $89,000, a far cry from its $108,000 peak in January. The recent sell-off has triggered a wave of outflows from U.S. spot Bitcoin ETFs, marking the fifth consecutive day of withdrawals. On February 24, $517 million was pulled from these funds, the largest outflow in seven weeks. Leading Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund, saw massive withdrawals of $159 million and $247 million, respectively. As a result, Bitcoin’s price took a hit, dropping 5% to $91,000 before falling further to $89,175, reflecting a 2.25% decline in the last hour.

The Impact of ETF Outflows

The sustained outflows from Bitcoin ETFs are contributing heavily to the downward pressure on Bitcoin’s price. Many of the investors in these ETFs are hedge funds that had bet on Bitcoin’s future price through a strategy called “basis trading.” In this strategy, funds buy Bitcoin ETFs and simultaneously short Bitcoin futures on the Chicago Mercantile Exchange (CME), taking advantage of the price gap between the spot and futures markets to earn profits with minimal risk.

However, with Bitcoin’s price declining, hedge funds are experiencing lower profits and are forced to unwind their positions. This involves selling ETF shares and buying back CME futures, a move that exacerbates Bitcoin’s downward spiral. Arthur Hayes, the co-founder of BitMEX, has warned that this pattern could push Bitcoin’s price as low as $70,000. When hedge funds exit the market in large numbers, it often leads to a chain reaction—additional selling by other investors, further exacerbating the price drop.

The Role of Tariff Policy Changes

Arthur Hayes also pointed to changes in Trump’s tariff policy as a key factor contributing to the selling pressure on Bitcoin. The tariff changes are seen as a catalyst for hedge funds to unwind their positions, adding to the overall market uncertainty. As these funds shift their strategies, Bitcoin continues to lose support, which in turn fuels the downward movement in price.

Hedge Funds and Arbitrage Trading

Much of the demand for Bitcoin ETFs has come from hedge funds participating in the arbitrage trade, not long-term investors looking to hold Bitcoin. The departure of these funds from the market has left a void in demand, making it harder for Bitcoin to sustain its previous highs. According to Markus Thielen from 10x Research, if the futures premium continues to drop, more funds will likely be forced to sell their ETF shares and buy back their shorted futures, further driving the price down.

Is Bitcoin at a Turning Point?

The latest downturn in Bitcoin’s price follows a surge that initially took the cryptocurrency beyond $100,000 after Trump’s election victory, raising hopes of a Bitcoin strategic reserve. However, as ETF investors withdraw and hedge funds exit, Bitcoin is struggling to maintain its momentum. Without fresh demand or new buyers entering the market, Hayes’ warning about Bitcoin potentially dropping to $70,000 becomes more plausible.

The market is now looking to the possibility of new Bitcoin ETFs to inject fresh capital and help lift Bitcoin out of its current slump. While the SEC has shown interest in approving new ETFs, it remains to be seen whether this can provide the needed boost to reverse the current trend and stabilize Bitcoin’s price.

In conclusion, Bitcoin’s price is facing significant pressure from ongoing ETF withdrawals and hedge fund sell-offs, with predictions of further declines if new buyers fail to step in. The situation is critical, and the next steps from the SEC and institutional investors will play a crucial role in determining Bitcoin’s short-term future.