Bitcoin’s price dropped from $72,000 to $65,500 yesterday. Accordingly, the Bitcoin price dropped from $72,500 yesterday to $65,500 today. reported earlier todayThis is due to several reasons, such as liquidation of large long positions in the hot futures market and the expectations that the market will continue its upward trend. “higher for longer” Yesterday, the US Federal Reserve changed its policy in response to hotter inflation data than was expected and the relatively poor performance of spot ETFs.
What caused the Bitcoin Crash?
But there’s also a rumor revealing another reason: A hedge fund failed to execute a spread trade, resulting in losses of over $1 billion. Andrew Kang was the founder and CEO of Mechanism Capital. revealed On X, the details behind this disaster.
“Apparently a fund blew out $1b+ on the MSTR-BTC spread trade today. They covered into the close which is why BTC dumped and MSTR premium went to the highs. PNL pocketed by based Saylor and will be put back into BTC.”
Kang has previously emphasized the fragility of transitional markets, and cited the fall of many major players as a result of delta-neutral flawed strategies. “You get some really wonky stuff that happens in market trend transitions. Like large delta-neutral funds/institutions getting blown out on ‘risk-free’ spread trades,” Kang made a comment, noting the recent failures of prominent firms such as BlockfiDCG – Genesis, Three Arrow Capital & Alameda.
MicroStrategy under Michael Saylor has been notable for its leveraged Bitcoin strategy, and the substantial amount of Bitcoin it holds often attracts short sellers. Kang said that: “MSTR currently has $3b of short interest – roughly 20% of its float. I imagine a lot of that float is angry tradfi boomers trying to capture the premium to NAV.”
The premium discrepancy Kang refers to—surging from 50% pre-ETF to 13% post-ETF, and recently peaking at 70%—illustrates the volatile dynamics at play between MicroStrategy’s stock value and its underlying Bitcoin holdings.
Trade Gone Wrong
Bit Paine of the renowned Bitcoin analysis firm and German crypto analyst Florian B. Bruce confirmed the story, noting that the unfolding of an important spread trade was the main catalyst behind the current market conditions. “That dip was because a fund blew up on their MSTR/BTC short,” Bit Pain remarked.
Bruce provided A concise explanation of a strategy that has gone wrong: “A hedge fund set up a spread trade shortly before the ETF approval: Long BTC & Short MSTR. The idea behind it was that MSTR will fall through the ETF while BTC rises.” It is clear that the hedge fund miscalculated, because the real market response was MSTR’s outperformance of Bitcoin. As a result, the positions were quickly unwinded, contributing to Bitcoins steep price drop.
“BTC was sold and the shorts on MSTR were closed (MSTR bought). This is probably also the reason why MSTR has just had a small mini rally and is doing less badly than other BTC ETFs. Enjoy the dip. I don’t think it will last long,” Bruce said
North Rock Digital (the supposed hedge fund) had previously outlined their contrarian strategy for X. They expressed skepticism regarding the valuations of crypto equities prior to ETF approval.
“The contrarian idea […] was to short crypto equities vs long spot crypto. In our view, as we approach the ETF, crypto equities have been being used as proxies for spot exposure […] once the ETF becomes available we expect this flow to reverse as many of these holders rotate exposure into the ETF. Given the dislocated nature of many of these names (MSTR, MARA and COIN are our three favorite shorts), we believe there are several attractive shorts to pair against long spot exposure,” North Rock Digital was established in January.
BTC is currently trading for $67,588.
Featured image created with DALL·E, chart from TradingView.com
Disclaimer article It is intended solely for educational use. NewsBTC does not give its opinion on the best way to invest, whether you should buy, hold or sell any investment. Investing is risky and comes with risks. It is recommended that you conduct your own research. own Research before investing. You are solely responsible for the use of information on this site. own risk.
“This article is not financial advice.”
“Always do your own research before making any type of investment.”
Source: www.newsbtc.com