Arthur Hayes Explains the Real Source of Recent Bitcoin Selloff

Bitcoin and other major cryptocurrencies have experienced a notable selloff, wiping out nearly $468 billion in market value since early February. Bitcoin (BTC-USD) dropped to $72,877 on February 5, its lowest level since U.S. President Donald Trump’s re-election in November 2024. The selloff has been accompanied by sharp swings in gold and silver, as well as heavy liquidations in leveraged crypto positions.

Arthur Hayes, a well-known market analyst, has linked the recent price weakness to broader macroeconomic conditions rather than crypto-specific factors. He points to a tightening in U.S. dollar liquidity and rising Treasury cash balances as the primary drivers of the Bitcoin price decline. These liquidity changes, he argues, have affected risk assets across markets, with Bitcoin being especially sensitive to cash flow dynamics.

Investor flows into U.S.-listed Bitcoin ETFs have also turned volatile. After attracting $562 million in inflows on Monday, these funds saw $272 million in outflows on Tuesday, pushing year-to-date outflows to nearly $1.3 billion. Bitcoin ETF assets have now slipped below $100 billion, marking the first time since April 2025 that the level has dropped so far.

Why Did the Selloff Occur?

Hayes attributes the drop to a shift in dollar liquidity, with $300 billion in liquidity removed from the system over recent weeks. A significant portion of this reduction is linked to the rise in the Treasury General Account (TGA) balance, which has absorbed around $200 billion in cash. This has restricted the availability of liquidity in the broader financial system, directly affecting assets that rely on abundant cash flow, including Bitcoin.

The Treasury’s liquidity adjustments may also reflect preparations for a potential government shutdown, a scenario that would require additional cash reserves. This dynamic has raised funding costs and reduced liquidity for risk-taking in the market, which has put downward pressure on Bitcoin and other crypto assets.

How Are Markets Reacting to the Selloff?

Bitcoin’s slide to $60,000 on February 6 marked a 30% decline over the prior week. The sharp drop has led to speculation about a possible forced liquidation by a large, non-crypto entity, with some traders suggesting a hedge fund blowup in Asia as a potential culprit.

The selloff has also triggered significant liquidations in the crypto futures market, with over $700 million in positions closed in a single day. These liquidations have added to the downward pressure, with cascading margin calls and stop-loss orders exacerbating price swings.

Despite the declines, some altcoins have seen modest inflows into their ETFs. Ether (ETH-USD), XRP (XRP-USD), and Solana (SOL-USD) have attracted $14 million, $19.6 million, and $1.2 million in inflows, respectively.

What Are Analysts Monitoring for Clarity and Rebound Signals?

Analysts are watching for signs of renewed dollar liquidity to support a potential Bitcoin recovery. Hayes has suggested that any sustained recovery depends on macroeconomic conditions improving and liquidity returning to the system. He is also monitoring dealer activity related to structured products, such as those tied to the iShares Bitcoin Trust (IBIT), which could influence price movements during periods of volatility.

On-chain data and technical indicators also remain under scrutiny. Bitcoin’s price is currently trading below all key moving averages, and its spent output profit ratio (SOPR) has fallen toward 1, a sign that many coins are being sold near their original cost basis. These metrics suggest that the selloff may be entering a late stage, with forced selling likely to slow as remaining sellers approach break-even levels.

Traders are also watching for a potential rebound above the $70,000 level. The RSI for Bitcoin has begun to rise from oversold levels, and the MACD is showing signs of contraction in its histogram, which suggests bearish momentum may be slowing. These technical signals suggest that bearish momentum may be slowing, though the broader trend remains bearish.

As the market navigates this volatility, investors are advised to monitor macroeconomic developments, Treasury actions, and on-chain activity for early signals of a potential shift in sentiment.