Bitcoin fell to $68,000 this morning, although it temporarily rebounded above $71,000, but later dropped below the $67,000 mark, leading to a widespread decline in other altcoins. According to Coinglass data, more than $500 million was liquidated in long positions in the past 24 hours.
Many analysts and market participants have expressed their opinions on this market correction.
Hedge Fund Liquidation Theory:
Andrew Kang, a partner at Mechanism Capital, pointed out that the reason for this decline is that a fund liquidated over $1 billion in funds on the price difference trading of MSTR-BTC. They chose to close their positions and stop losses at the closing, which caused BTC to fall and MSTR premium to further rise.
This argument is based on the “price difference trading between MicroStrategy stock (MSTR) and Bitcoin.” As Bitcoin rose, the MicroStrategy stock price, which constantly increased its holdings of Bitcoin, also rose. However, according to Bloomberg data, the increase in MicroStrategy stock price far exceeded the increase in Bitcoin, resulting in a premium for MicroStrategy relative to Bitcoin. This gave hedge funds the opportunity to “short MicroStrategy and long Bitcoin” in the price difference trading.
What Andrew Kang meant was that due to the failure of the MicroStrategy stock price to correct as expected, the premium between MSTR and Bitcoin continued to expand, causing a fund executing this price difference trading to be liquidated. They were forced to close Bitcoin long positions (equivalent to selling Bitcoin) and MicroStrategy short positions (equivalent to buying MicroStrategy), ultimately leading to the decline in Bitcoin.
According to information shared by Lookonchain, during the Bitcoin decline, more than 4,637 Bitcoins were deposited from Binance deposit addresses into Binance hot wallets. It is a coincidence that during the retracement on March 5th, there were also 4,876 Bitcoins deposited from Binance deposit addresses into Binance hot wallets, which inevitably raises suspicions whether these two retracements were caused by on-chain whales selling.
In fact, it is not only the cryptocurrency market that is experiencing a general decline. The U.S. Department of Labor released 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. Coupled with the recent continuous decline in chip stocks, all three major U.S. stock indices closed lower yesterday.
Investors are most concerned about whether there are short-term entry opportunities after the Bitcoin decline. In this regard, Adam Cochran, a partner at CEHV, believes that if Bitcoin experiences a sharp decline after the U.S. stock market closes, it may be a good time for short-term entry. This is because once the U.S. stock market opens, the buying pressure of Bitcoin spot ETFs will quickly surge in order to arbitrage, and the Bitcoin price will also rebound quickly.
However, many people in the community have refuted Adam Cochran’s view and pointed out that if there is a price difference, arbitrageurs will use the price difference to buy low-priced assets (such as directly buying Bitcoin or other lower-priced ETFs) and sell high-priced assets (such as higher-priced ETFs). This operation will bring the price of the ETF closer to the actual market price of Bitcoin, rather than causing the price of Bitcoin to rise to the level of the ETF.
(This article is authorized to be reproduced from GT Radar)
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GT Radar focuses on building a long-term and stable growth quantitative investment portfolio and has over 10 years of experience in stock market and cryptocurrency quantitative trading. The trading system integrates more than 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) in Binance have exceeded $1.5 million.
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