Bitcoin's Uptrend Stalls as Hedge Funds Cash Out

Bitcoin's recent price volatility has raised concerns among investors and analysts alike. According to a crypto venture capitalist, the cryptocurrency's uptrend will resume only when it attracts genuine buyers, rather than traders seeking arbitrage opportunities.

Kyle Chasse, founder of Master Ventures, took to social media on Feb. 27 to express his views on Bitcoin's current market dynamics. He described the situation as a "classic case of liquidity games," where hedge funds have been exploiting a low-risk yield trade using Bitcoin spot ETFs and CME futures. This strategy involved profiting from the difference between the futures price and the spot price of Bitcoin, a practice known as the cash and carry trade.

However, as the market tumbled, the price difference collapsed, making the trade unprofitable. This led to the unwinding of leveraged positions and a continued decline in Bitcoin's price. Chasse emphasized that hedge funds were not interested in Bitcoin's long-term prospects but rather sought low-risk yields. He argued that Bitcoin needs to attract real organic buyers to resume its uptrend.

Markus Thielen, head of research at 10x Research, echoed Chasse's sentiments in a Feb. 27 report. As crypto market sentiment declined, funding rates plunged, likely forcing these trades to unwind. Despite the recent market turmoil, some analysts remain optimistic about Bitcoin's long-term prospects. Pav Hundal, lead analyst at Swyftx, believes that most of the shakeout has already occurred, and the upcoming US inflation data could improve market conditions if it comes in lower than expected.

As Bitcoin's price fell below $80,000 for the first time since November, many analysts attributed the decline to macroeconomic uncertainty and concerns over proposed tariffs. However, Chasse suggested that the recent sell-off was due to hedge funds pulling liquidity from the market, leaving it in free fall.