What Is Causing Bitcoin’s Crash?
Crypto analyst Kyle Chasse believes the crash is linked to the unwinding of the cash and carry trade. This trading strategy has been holding Bitcoin’s price down for months. Hedge funds have been using this low-risk strategy to earn steady profits from Bitcoin spot ETFs and CME futures.
The cash and carry trade works like this:
- Buy Bitcoin spot ETFs like BlackRock’s IBIT or Fidelity’s FBTC.
- Short Bitcoin futures on the CME (Chicago Mercantile Exchange).
- Profit from the price difference between the two markets.
This strategy gave an annual return of around 5.68%. Some hedge funds even used leverage to double their profits. However, now that this trade is collapsing, it is draining massive amounts of liquidity from the market.
How Much Bitcoin Has Been Sold?
Over $1.9 billion worth of Bitcoin was sold in the past week alone. The sudden liquidation of these positions is pushing Bitcoin’s price down. CME open interest has also dropped sharply as hedge funds close their trades.
Why Are Hedge Funds Selling Bitcoin?
Hedge funds were not buying Bitcoin because they believed in its long-term value. They were simply using arbitrage to make risk-free profits. Now that the cash and carry trade is no longer profitable, they are withdrawing their money quickly.
This mass sell-off is creating intense selling pressure, causing Bitcoin’s price to fall further.
Other Factors Behind the Crash
Initially, many blamed the crash on Trump’s new tariffs and the recent Bybit hack. These events hurt market confidence, but they are not the main cause. The unwinding of the cash and carry trade is playing a bigger role in Bitcoin’s price drop.
What Happens Next?
Kyle Chasse believes that more cash and carry unwinding will happen in the coming days. This means more forced selling as hedge funds close their positions. Bitcoin’s price is expected to remain highly volatile.
Here’s what could happen next:
|
Event |
Impact on Bitcoin |
|
Cash and carry unwind |
Increased selling pressure |
|
Leverage liquidations |
Sharp price swings |
|
Long-term holders stepping in |
Price stabilization |
|
$70,000 support level tested |
Possible market rebound |
Will Bitcoin Recover?
Bitcoin could find support around $70,000. Around this price level, 6.76 million addresses hold about 2.64 million BTC bought at an average price of $65,296. These holders may prevent further price drops.
The analyst believes the current sell-off is a painful but necessary reset for the market. Once hedge funds clear their positions, the market could stabilize. However, investors should prepare for more price swings in the short term.
Bitcoin’s recent crash is not just about politics or hacking incidents. The unwinding of the cash and carry trade is playing a major role. While the sell-off is creating panic, it could also lay the foundation for a healthier market in the future. Long-term holders may need to step in to absorb the selling pressure and support Bitcoin’s price.
