Why Bitcoin remains sideways despite record BTC ETF inflows

• Bitcoin futures premium has seen hedge funds employ a cash-and-carry strategy.
• Ethena's mechanism for maintaining the value of its stablecoin also plays a role in Bitcoin's horizontal trend.
• Bitcoin's declining exchange reserve is likely flowing into spot Bitcoin ETFs.

Bitcoin's (BTC) price declined by 2.4% on Thursday following a general crypto market slump. However, key insights from derivatives and on-chain data show why BTC has been trading sideways.

Onchain and derivatives data explain reason for BTC’s range-bound move

Bitcoin's relative range-bound movement in the past few months, despite record net inflows of $12 billion across spot Bitcoin ETFs, has sparked worry among investors. Many analysts predicted a highly bullish outlook for Bitcoin when the ETFs launched.

However, prices have yet to reflect these predictions. Recent reports and on-chain data reveal key insights, suggesting why the top digital asset has continued trading relatively sideways.

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According to a Glassnode report, increased BTC CME Open Interest (OI) and large net short positions of entities categorized as hedge funds suggest traders are adopting a cash-and-carry arbitrage strategy.

Cash-and-carry arbitrage is a market-neutral strategy that involves buying an asset at the spot market and opening a short position in the futures contract of the same asset, which is trading at a premium.

"We can see that entities categorized as hedge funds are building up an increasingly large net short position for Bitcoin. This provides confluence that the cash-and-carry trade structure may be a meaningful source of ETF inflow demand, where the ETFs are the instrument for obtaining the long spot exposure," the report states.

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Another key factor to look into is a similar strategy employed by the DeFi protocol, Ethena, to maintain the price stability of its synthetic USDe stablecoin. Ethena employs a delta-neutral hedging strategy — similar to cash-and-carry, as explained above — where it purchases Bitcoin and Ethereum from the spot market and shorts their equivalent derivative products.

Ethena then profits from the funding rates fees received in their open positions. Considering that USDe has grown to over $3 billion in market cap, and Bitcoin forms a major part of its reserve asset, Ethena's strategy may have proved to hurt Bitcoin's chances of seeing a further rise.

JP Morgan analysts led by Nikolaos Panigirtzoglou also provided another perspective on the issue. According to the analysts, most of the inflows witnessed in Bitcoin ETFs likely flowed from digital wallets on exchange and not from new money entering the space.

BTC exchange reserves declined by about 220K BTC worth $13 billion since the launch of the ETFs in January. "This implies that the majority of the $16 billion inflow into spot bitcoin ETFs since launch likely reflects a rotation from existing digital wallets on exchanges," wrote the analysts.

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For Bitcoin's price to rise, new money must flow into the space with "organic buy-side from non-arbitrage demand is required to further stimulate positive price action," wrote Glassnode.

MicroStrategy's recent intention to raise $500 million to partly purchase more Bitcoin could help to provide this "organic buy-side non-arbitrage demand."