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Bitcoin has seen a significant drop in value in recent months, reversing earlier gains made following Donald Trump’s victory in the presidential election. While initial analyses pointed to Trump’s tariffs and the recent hacking attack on the crypto exchange Bybit, deeper investigation reveals structural issues within the market. Specifically, the main cause of the crash, according to analyst Kyle Chasse, lies in the collapse of the so-called “cash and carry” strategy that hedge funds had been using to profit from Bitcoin ETFs and futures contracts.
This strategy involved buying spot Bitcoin ETFs—such as those offered by BlackRock (IBIT) and Fidelity (FBTC)—while simultaneously shorting Bitcoin futures contracts on the CME exchange, thereby exploiting the price difference for a low-risk annual return of around 5.68%. Some funds even used leverage to boost their returns into double-digit percentages. However, the breakdown of this strategy led to a massive withdrawal of liquidity from the market, pushing Bitcoin into a freefall.
According to available data, over $1.9 billion worth of Bitcoin was sold just in the past week, leading to a sharp decline in open interest on the CME exchange as hedge funds closed their positions. In a matter of days, Bitcoin lost a significant portion of its value, while investor confidence took a serious hit. This supports the claim that funds never invested in Bitcoin for its long-term growth potential but instead used it as a tool for passive profit through arbitrage. Now that this model has failed, capital is retreating, leaving the market in chaos.
Although many traders initially attributed Bitcoin’s price drop to Trump’s tariffs—especially his recent moves against the European Union—and the negative impact of the Bybit hack, Chasse believes these factors are secondary to the primary structural change in the market. The collapse of the “cash and carry” strategy means that forced selling will likely continue until hedge funds have fully liquidated their positions. Increased volatility is expected, with leveraged liquidations further contributing to sharp price swings.
If the analysis is correct, the only way out of the current situation would be an inflow of genuine long-term investors capable of absorbing the selling pressure. Technical analysis suggests that the next key support level could be around $70,000, where there is a significant concentration of holdings—approximately 6.76 million addresses hold 2.64 million BTC bought at an average price of $65,296. This threshold could serve as a stabilizing point to prevent further losses.
However, Chasse acknowledges that demand for Bitcoin ETFs was partially genuine but largely driven by funds seeking quick profits through arbitrage. Now that the market is undergoing a painful but necessary correction, it remains to be seen whether Bitcoin will find a new equilibrium or if continued instability will mark the beginning of a prolonged period of uncertainty. The current situation once again highlights how vulnerable the cryptocurrency market is to external capital manipulation, where powerful financial players use Bitcoin as a tool while true long-term investors are left to bear the burden of market shifts.
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