Bitcoin ETFs Face $2.6B Outflow - Arthur Hayes Explains ‘Investors Are Not Fond of BTC’

This article discusses recent insights from Arthur Hayes, founder of BitMEX, regarding the declining interest in Bitcoin (BTC) from hedge funds and institutional investors. The significant outflow of funds from Bitcoin exchange-traded funds (ETFs) highlights investor sentiment and market trends. Hayes believes that liquidity conditions may improve in December, offering potential for Bitcoin's price to rise significantly if market dynamics change.

Key Takeaways

Arthur Hayes indicates that hedge funds are selling off their BTC positions as the attractiveness of basis trades declines.
He believes improved liquidity conditions in early December could drive risk assets and potentially push BTC to $200k.
Bitcoin's institutional inflows have been negative for four consecutive weeks, further fueling the sell-off.
November saw $2.59 billion withdrawn from U.S. spot BTC ETFs, with $1.26 billion coming specifically from BlackRock’s IBIT investors.

Arthur Hayes Bitcoin

Source: SoSo Value

Arthur Hayes Bitcoin

Future Outlook for BTC as Hedge Funds Withdraw

Arthur Hayes, the founder of BitMEX, states that the outflows from BlackRock's funds come mostly from hedge funds like Goldman Sachs. These funds were looking for higher returns compared to Federal Reserve rates through basis trades. This strategy involves purchasing spot BTC ETFs while shorting the asset on the Chicago Mercantile Exchange (CME) to profit from price differences.

However, Hayes notes that since the allure of basis trades has diminished, hedge funds with spot BTC ETFs have been exiting their investments.

Arthur Hayes Bitcoin

Source: Glassnode

Since October, the yield from these trades has decreased from around 14% to below 5%. This has spurred intensified outflows from ETF investments led by hedge funds, creating unease among retail investors.

“What’s happening is that retail investors are beginning to feel that these same hedge funds do not have faith in Bitcoin, leading to a negative feedback loop. This influences them to sell their holdings, further decreasing the basis and prompting more institutional investors to sell off their ETF shares,” explained Hayes.

Treasury Demand and Shifts in Liquidity

Hayes also pointed out that demand for BTC treasuries has diminished, suggesting that significant players are adopting a cautious stance. He emphasized that the withdrawal of dollar liquidity could rebound in December if the Federal Reserve ends its Quantitative Tightening (QT) program.

Arthur Hayes

Source: Bloomberg/Arthur Hayes (Treasury General Account, TGA balance)

The Treasury General Account (TGA) serves as the primary operating account for the U.S. government and significantly impacts market liquidity. When the TGA balance increases, it can drain liquidity as the Treasury collects more funds from the market. Conversely, a decrease in the balance can enhance liquidity.

According to a chart shared by Hayes, there was an uptick in the TGA in late October, which exacerbated market downturns, especially for risk assets.

Hayes anticipates that Bitcoin could drop between $80k and $85k in the short term, but if liquidity conditions ease, it could potentially surge towards $200k by the year's end.

In the interim, he believes the narrative around privacy-focused cryptocurrencies, particularly Zcash (ZEC), will continue to gain traction even as broader market conditions weaken. In fact, Hayes has shifted much of his personal investments toward ZEC.