In the previous tweet, we mentioned that MSTR and ETF are the core forces providing new demand for BTC in this cycle, and they are also important support for the sustained price increase (see citation). Although on December 9, MSTR announced the purchase of 10,624 BTC again, the frequency and scale have clearly intensified compared to the activity level from the third quarter of 2024 to early 2025. Meanwhile, the recent performance on the ETF side has been even weaker. This fully demonstrates that, under the current macro background, traditional capital's attitude towards BTC is becoming increasingly worried and panic-stricken, leading to an overall decline in risk appetite. In addition, there is another equally important but easily overlooked reason—basis convergence.
Funds for purchasing ETFs can be roughly divided into two categories:
1. Directional funds: Replacing direct holding of BTC with spot ETFs essentially means being bullish on BTC; 2. Hedging arbitrage funds: Buying spot ETFs while shorting BTC futures on the CME to expand basis returns. When market risk appetite declines, the first type of funds will naturally decrease; and when the basis continues to converge and arbitrage begins to decline, the second type of funds will gradually exit collectively.
(Figure 1) Figure 1 takes Binance's 3-month futures annualized rolling basis as an example: In March 2024, the basis reached its first peak at 25% (30D SMA); in December 2024, it retracted by about 15%; while currently, it is only at 4.7%. In a typical bull market, a high basis often indicates that the market bulls are willing to buy forward contracts at a previous premium, which will be used as a leverage tool. The continued existence of the basis synchronizes bullish sentiment, risk appetite, and willingness to leverage.
Against this backdrop, the market has gradually entered a negative feedback loop:
Bulls are willing to return → basis converges → arbitrage funds exit → ETF purchasing power recovers → BTC price is under pressure → CME hedging short positions take profit → spot selling under hedging structure → bulls further recruit.
(Figure 2) Therefore, in the comparison between Figure 1 and Figure 2, we can see: in the red adjustment area, the basis rises, corresponding to significant net inflow into ETFs; in the green adjustment area, the basis rises, corresponding to continuous net jumps in ETFs.
How to break this cycle?
In the short term, it is not easy. The market needs to see clearer macro expectations, increased risk appetite, new demand entry, and bulls willing to enhance, so funds will naturally flow in.
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