Bitcoin Experiences Decline as ETF Outflows Continue
Since June 10, Bitcoin has seen a significant drop in price, falling from around $72,000 to as low as $65,200. This decline has coincided with substantial outflows from Bitcoin exchange-traded funds (ETFs), with approximately $580.6 million exiting the market, according to Farside data.
This stands in stark contrast to the previous streak of 19 consecutive days of inflows, totaling roughly $4 billion, which occurred as Bitcoin’s price surged from $60,000 to $72,000 between May 13 and June 7.
The recent outflows represent about 4.3% of the total inflows and have aligned with a roughly 10% correction in Bitcoin’s price.
Questions have arisen as to why Bitcoin’s price did not rise despite the significant inflows. One possible explanation is the “basis trade” strategy employed by hedge funds and investors.
This strategy involves going long on the underlying spot ETF products and shorting the futures market, creating a net-neutral trade that safeguards investors regardless of price fluctuations. Traders focus on the spread between the spot price and the futures price to determine the profitability of the basis trade.
The current positive funding rates, around 6% according to Coinglass, have influenced this approach. Traders are willing to pay higher costs to leverage long positions in Bitcoin, often using calendar futures on the CME, which trade at a premium to the spot price. This situation allows traders to roll over futures contracts through a process known as “rolling forward,” extending their positions without interruption.
By shorting the futures market while maintaining long positions in the spot market, traders create a hedge that dampens price movements, leading to the observed “suppression” of Bitcoin’s price.
The rolling forward strategy enables traders to stay exposed to Bitcoin without closing their positions at contract expiration. Consequently, the Bitcoin price is less sensitive to inflows despite significant flows, offering a possible explanation for why it has not reached new all-time highs following the $4 billion influx.
