Bitcoin (BTC) investors have sought explanations for the lack of bullish momentum since the spot Bitcoin exchange-traded fund (ETF) initiated trading on Jan. 12. Multiple factors for the absence of bullish price action have been identified, but none are entirely conclusive. Meanwhile, leveraged long positions using BTC margin at Bitfinex have increased to a staggering $3 billion, prompting speculation that Bitcoin whales are preparing for a bull run.
GBTC ETF outflow and macroeconomic factors take the blame
Some analysts, including BitMEX founder Arthur Hayes, believe investors previously expected the U.S. Federal Reserve (Fed) to cut interest rates as soon as March, but recent inflationary events have greatly reduced those odds. Hayes thinks that by not renewing its Bank Term Funding Program (BTFP), the Fed will put U.S. regional banks to the test, draining liquidity from risk markets and negatively impacting assets like Bitcoin.
The longer interest rates remain high, the fewer incentives investors have to exit fixed-income positions. Under this scenario, Hayes predicts that Bitcoin’s price will fall below $35,000 by March–partially explaining the recent bearish momentum. Despite this being a valid hypothesis, it does not explain the resilience of other risk markets such as the SPDR Bloomberg High Yield Bond ETF (JNK), which tracks debt instruments with a riskier profile. Currently, at $95, the JNK ETF is trading 0.5% below its highest level in five months.
Another source of discomfort for Bitcoin investors comes from the Grayscale GBTC Trust ETF outflow, although such risk had been on the radar for a long time, as evidenced by Cointelegraph on June 30, 2023. Since Jan. 18, the spot Bitcoin ETF incumbents, including BlackRock, Fidelity, ARK 21Shares, and Bitwise, have captured 84% of the equivalent Bitcoin that has left GBTC. In essence, it seems unlikely that an $87 million average daily net outflow has caused Bitcoin to break below $40,000 and reach its lowest levels since December 2023.
Increasing BTC longs at Bitfinex is not necessarily a bullish trade
The mystery regarding the $3 billion Bitcoin bullish margin position on Bitfinex becomes even more concerning given that it increased by 10% since Jan. 17.
Notice the significant increase since Jan. 17, although it did not affect Bitcoin price. This supports the theory that such margin trades are market-neutral because the borrower is not leveraging their positions with the proceeds. Most likely, there is some arbitrage involving derivatives instruments or the spot ETF.
Bitfinex's current 74,738 BTC margin longs (positive) significantly surpass the 445 BTC margin shorts (negative), which is consistently below 2,500 BTC for the past 12 months. The sub-0.01% BTC annual margin funding rate contributes to this distortion, creating substantial incentives for borrowing, even without short-term utility.
Related: Bitcoin sees biggest bid block in 3 years as BTC price slips at $40K
Traders should cross-reference the data to confirm if the anomaly solely affects margin markets, considering each exchange’s distinct risks, liquidity and availability. For instance, the net long-to-short ratio of top traders consolidates positions across perpetual and quarterly futures contracts, offering clearer insight.
On Jan. 17, top traders at OKX started with a 1.58 long-to-short ratio, increasing it until Jan. 22, then reversing as BTC dropped below $41,000. Binance data differs, starting at 1.35 favoring longs on Jan. 17, closing at 1.39 on Jan. 25, indicating top traders didn't turn bearish despite recent Bitcoin price corrections.
The rise in Bitfinex BTC margin longs likely represents arbitrage with minimal market impact. However, leverage bullish positions dominate across futures and margin markets, signaling pro traders' confidence in Bitcoin’s potential future performance.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
