Is Wall Street Behind the Bitcoin Bloodbath?

The current Bitcoin bloodbath isn’t just the usual bull run correction.

It has Wall Street behind it, according to Kyle Chassé, co-founder of Master Ventures, who blames the cash and carry trade, an arbitrage strategy that plays off a mispricing between an underlying asset and its derivatives.

In this case, hedge funds buying Bitcoin via spot exchange-traded funds (ETF) while simultaneously shorting BTC futures on the CME exchange, Chassé said. They then farmed the spread, pulling in annualized returns of about 5.68%. It was a nice, low-risk yield trade that hedge funds were “exploiting” for months.

“The trade depended on BTC futures trading at a premium to spot,” Chassé said. “But with recent market weakness, that premium has collapsed. The result? The trade is no longer profitable. Funds are exiting en masse. BTC selling pressure has skyrocketed.”

That can be seen in ETF outflows of $2.7 billion in the past week, according to SoSoValue.

CME open interest is “plummeting as funds close futures positions,” he added. “The same trade that kept Bitcoin stable on the way up is accelerating the crash now.”

Open interest is down by about $3 billion since Feb. 20, according to the CME.

It’s happening because hedge funds were never betting on Bitcoin’s price skyrocketing, Chassé said. They were just yield farming, and now, with that strategy dead, they are pulling their liquidity, leaving the market tumbling.

“Everyone wanted Main Street adoption, but with that came Wall Street participation, and whether we like it or not, single firms control more assets than the entire crypto market and they are wicked smart,” said tokenized marketing rewards firm Hummingbird CEO Kevin Oakeson.

Volatility won’t go away until all those leveraged positions get liquidated, Chassé said.

“BTC needs to find real organic buyers,” he said. “Not just hedge funds chasing yield.”