Bitcoin fell to $68,000 this morning, although it rebounded above $71,000 briefly, it quickly dropped below the $67,000 support level, leading to a widespread decline in other altcoins. According to data from Coinglass, more than $500 million was liquidated in long positions in the past 24 hours.
Hedge Fund Liquidation Theory
Andrew Kang, a partner at Mechanism Capital, pointed out that the reason for this downturn was due to a fund liquidating more than $1 billion in MSTR-BTC spread trading. They chose to close their positions and stop losses at the close, which further led to the fall of BTC and the surge of MSTR premium.
This argument is based on the “spread trading between MicroStrategy stock (MSTR) and Bitcoin.” As Bitcoin rose, the MicroStrategy stock price, which continuously increased its Bitcoin holdings, also rose. However, according to Bloomberg’s data, the rise in MicroStrategy stock price far exceeded the increase in Bitcoin holdings, resulting in a premium for MicroStrategy relative to Bitcoin. This gave hedge funds the opportunity to engage in spread trading by shorting MicroStrategy and longing Bitcoin.
Andrew Kang’s point is that due to the lack of expected correction in the MicroStrategy stock price, the premium between MSTR and Bitcoin continued to expand, causing a fund executing this spread trading to be liquidated. They were forced to close their long positions in Bitcoin (equivalent to selling Bitcoin) and their short positions in MicroStrategy (equivalent to buying MicroStrategy), ultimately leading to the decline of Bitcoin.
Whale Dumping on the Chain
According to information shared by Lookonchain, more than 4,637 Bitcoins were deposited into the Binance hot wallet from the Binance deposit address during the Bitcoin downturn. Interestingly, during the market correction on March 5th, there were also 4,876 Bitcoins deposited into the Binance hot wallet from the Binance deposit address. This raises suspicions that these two market corrections may have been caused by on-chain whale selling.
PPI Exceeds Expectations, Stocks and Cryptocurrencies Fall
The general market decline is not limited to the cryptocurrency market. The US Department of Labor announced two Producer Price Index (PPI) reports yesterday, with an annual growth rate of 1.6%, the fastest since September last year, far exceeding economists’ expectations of 1.1%. This data once again raised concerns in the market about the possibility of the Federal Reserve delaying interest rate cuts. In addition, with the recent turmoil in chip stocks, all three major US stock indexes fell yesterday.
Investors are most concerned about whether there are short-term entry opportunities after the Bitcoin downturn. In response to this, Adam Cochran, a partner at CEHV, believes that if Bitcoin sees a major decline after the US stock market closes, it may be a good time for short-term entry. This is because once the US stock market opens, buying pressure from Bitcoin spot ETFs will quickly surge in to take advantage of arbitrage opportunities, leading to a rapid rebound in Bitcoin prices.
However, many people in the community have rebutted Adam Cochran’s viewpoint and pointed out that if there is a price difference, arbitrageurs will exploit this difference by buying the lower-priced assets (such as buying Bitcoin directly or other lower-priced ETFs) and selling the higher-priced assets (such as higher-priced ETFs). This operation will bring the ETF price closer to the actual market price of Bitcoin, rather than pushing the price of Bitcoin up to the level of the ETF.
(This article is authorized and reprinted from GT Radar)
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GT Radar focuses on building long-term and stable growth quantitative investment portfolios, with over 10 years of experience in stock and cryptocurrency quantitative trading. The trading system integrates over 150 strategies, aiming to provide high adaptability and flexibility, ensuring profits are obtained from the market in the most robust way. Currently, our assets under management (AUM) on Binance have exceeded $1.5 million USDT.
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