Arbitrage trading of the spot BTC ETFs and a drop in demand for inflation hedges could be limiting Bitcoin’s price upside.
Since July 5, Bitcoin (BTC) has seen net inflows of $1.91 billion in its US spot exchange-traded funds (ETFs). Despite this, its price has struggled to stay above $65,000.
Meanwhile, the S&P 500 index reached an all-time high on July 16, and gold, considered the world's largest reserve asset, traded at a historical high on July 17. This indicates that the factors hindering Bitcoin's performance are not tied to the traditional finance markets. But what exactly is causing this underperformance?
To begin with, buyers of spot ETFs might have shifted away from spot positions, possibly for tax reasons or to use those shares as collateral for traditional finance trades. Additionally, major holders of these ETFs include hedge funds known for arbitrage trades, which aim to profit from market inefficiencies without betting on price movements. For example, the cash and carry trade involves selling Bitcoin futures while simultaneously buying the equivalent spot ETF position.
