Bitcoin Crash Triggered By Failed $1 Billion Hedge Fund Spread Trade: Expert
March 15 2024 - 8:50AM
NEWSBTC
The Bitcoin price has crashed from over $72,000 yesterday to as low
as $65,500. As reported earlier today, there are several obvious
reasons for this, such as the liquidation of extensive long
positions on the red-hot futures market, expectations of a “higher
for longer” policy by the US Federal Reserve as a result of hotter
than expected inflation data and a relatively weak inflow day for
the spot ETFs yesterday. Did This Trigger The Bitcoin Crash?
However, there is also a rumor that reveals yet another hidden
reason for the crash: a failed spread trade by a hedge fund that
resulted in over a billion dollars in losses. Andrew Kang, the
founder of Mechanism Capital, revealed on X the intricate details
of this debacle. “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 had earlier elucidated
the precarious nature of market transitions, citing the downfall of
several major players due to flawed delta-neutral 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 remarked, pointing to
past failures of notable firms like Blockfi, DCG, Genesis, Three
Arrow Capital and Alameda. Related Reading: Why Is Bitcoin Price
Down Today? 3 Key Reasons MicroStrategy, under the leadership of
Michael Saylor, has notably been a leveraged play on Bitcoin, with
its substantial holdings often leading to significant interest from
short sellers. According to Kang, “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 Renowned Bitcoin
analyst Bit Paine and German crypto analyst Florian Bruce
corroborated the narrative, pointing to the unwinding of a
significant spread trade as the catalyst for the market movements.
“That dip was because a fund blew up on their MSTR/BTC short,” Bit
Paine remarked. Related Reading: Bitcoin Miners Brace For Impact As
Difficulty Reaches Unprecedented Levels Bruce provided a clear
exposition of the strategy gone awry: “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.” This explanation lays bare the hedge fund’s
miscalculation, as the actual market response saw MSTR outperformed
Bitcoin, necessitating a rapid unwinding of positions that
contributed to Bitcoin’s sharp price decline. “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 stated. The supposed hedge fund in question,
North Rock Digital, had previously outlined its contrarian strategy
on X, expressing skepticism towards the valuation of crypto
equities in the lead-up to ETF approvals. “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 stated in January. At press
time, BTC traded at $67,588. Featured image created with DALL·E,
chart from TradingView.com
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