Arthur Hayes Warns Bitcoin Could Plunge to $70K as Hedge Funds Unwind ETF Positions

Bitcoin’s recent rally may face a serious test as hedge funds begin unwinding their trades in U.S. spot Bitcoin ETFs, according to BitMEX co-founder Arthur Hayes. In a February 24 post on X, Hayes cautioned that a sharp downturn—what he called a trip to “goblin town”—could be on the horizon if institutional investors exit their positions.

Hedge Funds Could Trigger a Bitcoin Sell-Off

Hayes explained that many hedge funds holding Bitcoin ETFs, such as BlackRock’s iShares Bitcoin Trust (IBIT), have been executing a basis trade. This involves going long on spot Bitcoin ETFs while simultaneously shorting BTC futures on the Chicago Mercantile Exchange (CME) to capture a low-risk yield. However, with Bitcoin’s recent price fluctuations, this yield—known as the basis spread—has narrowed to levels similar to short-term U.S. Treasury yields.

As a result, Hayes believes these funds are likely to unwind their positions, selling ETF shares and covering their CME futures shorts. If done at scale, this could create a chain reaction of selling pressure, driving BTC price back down to $70,000.

ETF Outflows Gain Momentum

Adding to concerns, outflows from spot Bitcoin ETFs have already accelerated. February 24 marked the largest single-day outflow in nearly two months, with a total of $517 million leaving U.S.-based Bitcoin ETFs, according to data from HODL15Capital.

Fidelity’s Wise Origin Bitcoin Fund saw the largest individual outflow, shedding $247 million. BlackRock’s IBIT also recorded a significant withdrawal of $159 million. Other funds, including those from Bitwise, Invesco, VanEck, WisdomTree, and Grayscale, experienced smaller outflows, signaling that institutional investors may be repositioning their holdings amid market uncertainty.

These persistent outflows have now extended into five consecutive trading days, fueling speculation that hedge funds are indeed in the process of unwinding their basis trades.

Market Faces a Potential Feedback Loop

Bitcoin has already felt the pressure, with its price dropping more than 7% over the past day, briefly touching an intraday low of $88,300 before staging a minor recovery.

Analysts warn that if outflows continue, a self-reinforcing cycle could emerge—selling pressure from ETFs pushing Bitcoin lower, further reducing the futures premium, and compelling more funds to exit their trades.