Arthur Hayes Warns of Bitcoin â€œGoblin Townâ€ â€“ Could BTC Crash to $70K?

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Bitcoin’s impressive rally may face a significant pullback, with BitMEX co-founder Arthur Hayes warning that the cryptocurrency could drop to $70,000 as hedge funds begin unwinding their positions in U.S. Bitcoin exchange-traded funds (ETFs).

In a Feb. 24 post on X, Hayes suggested that “goblin town” could be on the horizon for Bitcoin, fueled by large outflows from spot BTC ETFs like BlackRock’s IBIT.

Hedge Fund Arbitrage and the “Basis Trade” Risk

Many IBIT holders are hedge funds engaging in a well-known arbitrage strategy: going long on BTC ETFs while shorting CME futures to secure a low-risk yield exceeding that of short-term U.S. Treasury bonds.

#Bitcoin goblin town incoming:
Lots of $IBIT holders are hedge funds that went long ETF short CME future to earn a yield greater than where they fund, short term US treasuries.

If that basis drops as $BTC falls, then these funds will sell $IBIT and buy back CME futures.

Theseâ€¦ pic.twitter.com/3PskTxrBPR
— Arthur Hayes (@CryptoHayes) February 24, 2025

However, as BTC’s price declines, the “basis spread”â€”the difference between spot BTC prices and futuresâ€”shrinks. If this spread falls to match Treasury yields, funds have little incentive to hold their positions. According to Hayes, these funds will then start selling IBIT shares and buying back their CME short positions, leading to an acceleration of BTC sell-offs.

Also read: US Bitcoin ETFs Record $1.14B Outflows Amid US-China Trade Tensions

Given that many hedge funds are already in profit, Hayes believes they will take this opportunity to unwind their trades during U.S. market hours, potentially pushing BTC’s price down to $70,000.

ETF Outflows Gain Momentum

Hayesâ€™ warning aligns with data showing that Bitcoin ETF outflows have been increasing.

On Feb. 24, spot Bitcoin ETFs in the U.S. saw their largest single-day outflows in seven weeks, with a net $517 million exiting across all funds.

BlackRock’s IBIT: Lost $159 million
Fidelityâ€™s Wise Origin Bitcoin Fund: Lost $247 million
Other funds, including Bitwise, Invesco, VanEck, WisdomTree, and Grayscale, also recorded outflows, according to CoinGlass.

The five-day streak of outflows suggests that institutional investors are reevaluating their positions, potentially increasing selling pressure on the largest crypto by market cap.

Also read: HK Asia Holdings Doubles Down on Bitcoinâ€”Investors Take Notice

The Feedback Loop That Could Drive Bitcoin Lower

A report from 10x Research, led by Markus Thielen, highlights that much of BTC ETF demand has been driven by hedge funds executing this basis trade strategy, rather than long-term holders.

If Bitcoinâ€™s price continues to fall, the futures premium will likely contract, causing a wave of forced unwinding. This creates a negative feedback loop, where hedge funds rush to exit their positions, exacerbating selling pressure on BTC and its ETFs.

Also read: Montana Lawmakers Reject Bill to Make Bitcoin a State Reserve Asset

With hedge funds exiting BTC ETFs, the market faces significant volatility. If selling pressure continues and outflows accelerate, the leading crypto could find itself in a sharp retracement. However, long-term holders and retail investors will be watching closely for opportunities to buy the dip, which could stabilize the market.

Author

Steven Walgenbach

Steven's passion for cryptocurrency and blockchain technology began in 2014, inspiring him to immerse himself in the field. He notably secured a top 5 world ranking in robotics. While he initially pursued a computer science degree at the University of Texas at Arlington, he chose to pause his studies after two semesters to take a more hands-on approach in advancing cryptocurrency technology. During this period, he actively worked on multiple patents related to cryptocurrency and blockchain. Additionally, Steven has explored various areas of the financial sector, including banking and financial markets, developing prototypes such as fully autonomous trading bots and intuitive interfaces that streamline blockchain integration, among other innovations.

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