- Hedge Funds Fuel Volatility – Short-term arbitrage strategies by hedge funds are driving Bitcoin’s price swings.
- Liquidity Withdrawal Impact – As hedge funds exit, Bitcoin faces rapid declines, falling below $80K for the first time since November.
- Macroeconomic Pressure – Inflation concerns and Trump’s proposed tariffs add further instability to the crypto market.
The volatility of Bitcoin’s price is anticipated to continue as the market is still affected by hedge funds employing short-term trading tactics. Kyle Chasse, the founder of Master Ventures, states that Bitcoin needs to draw in organic buyers to create a consistent upward trajectory.
He stressed that exchange-traded funds (ETFs) have not only attracted long-term investors but also appealed to hedge funds that prioritize arbitrage trading instead of long-term investments.
Chasse emphasized that hedge funds have been employing a low-risk yield approach that incorporates Bitcoin spot ETFs and CME futures contracts. He said that volatility will continue for Bitcoin as leveraged positions get liquidated and the cash and carry trade will keep unwinding. BTC needs to find real organic buyers (not just hedge funds extracting yield),” he said.
Chasse explained that hedge funds were making profits trading the difference between Bitcoin futures price and Bitcoin’s spot price, as the futures’ price was higher.Nonetheless, as market conditions shifted, the effectiveness of this method diminished, leading to substantial liquidations and heightened price volatility.
Decrease in Funding Rates Compels Hedge Funds to Withdraw
As the sentiment in the crypto market deteriorated, funding rates fell, compelling hedge funds to close their positions. Markus Thielen, the research head at 10x Research, said that the drop in market sentiment exacerbated this tendency. He stressed that hedge funds did not invest in Bitcoin’s long-term growth, but rather took advantage of short-term price discrepancies.
Chasse went on to say that hedge funds were not focused on Bitcoin’s price surge and were more concerned with short-term earnings.
Consequently, when their chances for arbitrage decreased, they pulled back liquidity, making the market susceptible to swift downturns. The recent decline witnessed Bitcoin dropping beneath $80,000 for the first time since November, indicating the effect of hedge fund liquidations on the overall market.
Macroeconomic Elements and Market Responses
Apart from hedge fund actions, macroeconomic unpredictability has influenced Bitcoin’s recent price changes as well. Worries about suggested tariffs by ex-U.S. President Donald Trump and persistent inflation anxieties have led to market volatility. Analysts have noted that these elements have increased pressure on Bitcoin and the wider cryptocurrency market.
Pav Hundal, chief analyst at Swyftx, indicated that although additional declines could happen, the majority of the sell-off has probably already taken place.
He mentioned that forthcoming U.S. inflation data might affect market conditions, possibly providing some relief if the numbers are below expectations. Nevertheless, in the absence of a significant number of organic buyers, Bitcoin might keep experiencing short-term fluctuations.
The recent changes in the market emphasize the difficulties created by short-term traders and economic instability. Although the future path of Bitcoin is unclear, experts concur that winning over real investors is crucial for stability. Bitcoin’s price is anticipated to stay extremely volatile until organic buyers increase their market presence.
