Key takeaways
Why is BlackRock leading in ETF exits?
According to Hayes, hedge funds are liquidating their BTC positions as basis trading declines.
What is the pivot he sees for the market?
According to him, an improvement in liquidity conditions in early December could boost risk assets and drive BTC to $200,000.
Bitcoin (BTC) institutional flows remained negative for the fourth consecutive week, further accelerating the ongoing liquidation.
So far in November, $2.59 billion has left spot BTC ETFs in the US, with half of the outflows ($1.26 billion) attributable to BlackRock’s IBIT investors.
Source: SoSo Value
What’s next for BTC with the exit of hedge funds
According to Arthur HayesFounder of BitMEX, the BlackRock leak came primarily from hedge funds, such as Goldman Sachs, which were seeking additional yield above Fed rates via basic BTC trading.
This involves buying BTC ETFs spot and short selling the asset on CME to capture the spread (basis trade).
However, now that basis trading is no longer attractive, they have hedge funds with spot BTC ETFs that have exited their positions, Hayes noted.
Source: Glassnode
Since October, the yield has fallen from around 14% to less than 5%. And with that, hedge fund-led ETF outflows intensified, further spooking retail investors, Hayes added.
“Now individuals believe that these same investors dislike Bitcoin and create a negative feedback loop that incentivizes them to sell, which diminishes the basis, ultimately causing more institutional investors to sell the ETF.”
Changes in Treasury Bill Demand and Liquidity
Additionally, demand for BTC Treasuries has also declined, further reinforcing near-term fears that major players are adopting a wait-and-see approach.
Hayes pointed out that dollar liquidity has also been withdrawn and could be reintroduced by December when the Fed ends quantitative tightening (QT).
Source: Bloomberg/Arthur Hayes (General Treasury Account, TGA balance)
The Treasury General Balance (TGA) is the primary operating account of the U.S. government and directly affects market liquidity.
An increase in the TGA balance results in a liquidity flight as the Treasury collects more money from the market, while a decrease increases liquidity.
According to the chart shared by Hayes, there was an uptick in TGA in late October that further worsened the market rout, particularly for risk assets.
Hayes predicted that BTC could slide to between $80,000 and $85,000 in the near term before climbing towards $200,000 by the end of the year, depending on easing liquidity.
Meanwhile, Hayes expected the privacy talk, led by Zcash (ZEC)to remain strong despite wider weakening. In fact, he abandoned most altcoins for ZEC.
