Bitcoin’s (BTC) price has hit a three-month low, reversing its post-election gains following Donald Trump’s victory.

While initial market sentiment blamed the downturn on US President Donald Trump’s tariffs and the recent Bybit hack, analysts are now pointing to a more structural cause.

Why Bitcoin Is Crashing, Analyst Offers New Perspective

Crypto analyst Kyle Chasse ascribes the ongoing crypto market crash to unwinding the cash and carry trade that has been suppressing BTC’s price for months. He explains that hedge funds have exploited a low-risk arbitrage trade involving Bitcoin spot ETFs (exchange-traded funds) and CME futures.

“Bitcoin is crashing. Wondering why? The cash & carry trade that’s been suppressing BTC’s price is now unwinding,” he stated.

The strategy involved buying Bitcoin spot ETFs such as those from BlackRock (IBIT) and Fidelity (FBTC). It also involved shorting BTC futures on the CME and farming the spread for an annualized return of approximately 5.68%.

According to the analyst, some funds used leverage to boost double-digit returns. However, this trade is now collapsing, causing massive liquidity withdrawals from the market and sending Bitcoin’s price into free fall.

The collapse of the cash and carry trade has led to over $1.9 billion in Bitcoin sold in the past week. This marks a significant decline in CME open interest as hedge funds unwind positions. It has also caused a double-digit percentage drop in Bitcoin’s price within days.

According to Chasse, hedge funds never bet on Bitcoin’s long-term price appreciation. Instead, they were farming a risk-free yield using arbitrage. Now that the trade is dead, they are rapidly pulling liquidity, intensifying Bitcoin’s sell-off.

“Why is this happening? Because hedge funds don’t care about Bitcoin. They weren’t betting on BTC mooning. They were farming low-risk yield. Now that the trade is dead, they’re pulling liquidity—leaving the market in free fall,” the analyst added.

Before the cash and carry unwind was identified, many traders blamed Trump’s aggressive tariffs. More recently, tariffs against the European Union sparked market fears. The recent Bybit hack also contributed to soured investor sentiment.

While Bitcoin remains under pressure, Kyle Chasse sees a path forward. More cash and carry unwinding is expected, meaning forced selling will continue until all hedge fund positions are cleared. Volatility will likely increase as leveraged positions get liquidated, leading to sharp swings in Bitcoin’s price.

If the analyst’s perspective is true, Bitcoin would need real, long-term holders to step in and absorb the selling pressure. According to technical analysis, Bitcoin’s next target could be around $70,000, a key support level that might stabilize the market.

Around this level, 6.76 million addresses hold approximately 2.64 million BTC tokens acquired at an average price of $65,296. Therefore, this zone may offer significant support for Bitcoin price, as holders prevent further losses.

The analyst acknowledges that ETF-driven demand was partly real but heavily influenced by arbitrage players looking for quick profits. For now, the market is undergoing a painful but necessary reset. With it, traders and investors should brace for volatility in what could lay the groundwork for Bitcoin’s next directional bias.

The so-called ‘Trump Trade’ faces intense scrutiny as Bitcoin (BTC), Tesla (TSLA), and the US dollar all experience significant declines.

The initial enthusiasm for President Donald Trump’s pro-growth policies has faded, leading to disappointment in the financial markets.

Bitcoin, Tesla, and US Dollar Show Sharp Decline

Bitcoin, which had surged past $100,000 amid optimism for a second Trump administration, has now dropped below $85,310. Market analysis points to a lack of solid support between the $90,000 and $70,000 range, raising concerns about further declines.

The sharp fall comes as traders react to President Donald Trump’s lack of concrete action to ease crypto regulations despite earlier promises. Crypto analyst and influencer Crypto Rover summed up the disappointment on social media.

“Trump promised us a strategic Bitcoin reserve. He gave us a trade war instead” the analyst wrote.

Tesla, often seen as a barometer of the so-called ‘Trump Trade,’ has experienced a steep decline. Its stock, TSLA, is down nearly 40% since its peak following Trump’s election victory. The electric vehicle giant fell almost 4% on February 26 alone. This downswing extended a losing streak that has seen its stock drop 24% for the year.

Investors are increasingly concerned that Tesla is being sidelined by CEO Elon Musk’s focus on federal reforms. Furthermore, Musk’s polarizing political stance has hurt Tesla’s performance in Europe, where sales dropped 45% in January, despite the overall increase in electric vehicle sales in the region by 37%.

Similarly, the US dollar and Treasury yields, which had initially strengthened on expectations of Trump’s economic policies, are now in decline. Analysts cite fears that Trump’s aggressive trade policies—especially his newly announced tariffs—could lead to a resurgence of inflation while simultaneously slowing economic growth.

The Impact of Trump’s Trade War

The Kobeissi Letter, a well-known financial analysis outlet, highlighted the wide-ranging impact of Trump’s aggressive trade stance. The president recently announced sweeping tariffs, including 25% on Canada and Mexico, 25% on the European Union, 10% on China, and a potential 100% tariff on BRICS nations.

These tariffs are expected to raise the cost of goods in the US, with inflation expectations surging and analysts warning that it could double from its recent lows.

“Markets are now pricing in a rebound in inflation as prices on many goods are expected to rise,” observed The Kobeissi Letter.

Meanwhile, one of the most striking trends in financial markets is the sharp divergence between Bitcoin and gold. While gold has surged 10% recently, Bitcoin has dropped 10%, despite historically being viewed as a hedge against economic uncertainty.

Amid the market turmoil, a new study by Dancing Numbers suggests that Trump’s tariff plan could offer significant tax relief to Americans. The study found that replacing income taxes with tariffs on imports could save the average American up to $325,561 in lifetime taxes.

If Trump’s tariff plan eliminates federal income taxes, New Jersey, Connecticut, and New York residents could save $146,160, $149,535, and $136,215 over their lifetimes.

With many Americans struggling under high tax burdens, Trump’s proposal could represent a seismic shift in the country’s financial space. However, skeptics worry that relying solely on tariffs could increase inflation and create new economic challenges.

“This could shake global markets! Volatility is the new normal, and US inflation may stay high—rate cuts? Not so soon,” Jagadish, a user on X, expressed.

Investors remain wary of further volatility as markets adjust to Trump’s policies. The ‘Trump Trade’ is facing its biggest test with mounting inflation concerns and key assets faltering.

In the past two days, the Bitcoin price has tumbled more than 10%, rattling a crypto market that had seen a sustained period of relative stability. The pullback has left investors questioning the role of US spot-based Bitcoin ETFs in the downturn, as data emerges revealing significant outflows from these products.

Vetle Lunde, Head of Research at K33 Research, highlighted on X that ETF outflows have reached notably high levels:“Yesterday’s net outflow of 14,579 BTC in BTC ETPs globally is the largest recorded net outflow since the launch of US spot ETFs. Outflows have dominated throughout February. 69% of all trading days have concluded with net outflows.”

Are Bitcoin ETFs To Blame?

These figures point to a steady drumbeat of selling pressure in the ETF market. The significance, according to Lunde, is not just the single-day spike in outflows but the persistent trend throughout the month of February.

However, not all market observers agree that the large outflows necessarily spell doom. Adam (@abetrade) from Trading Riot argues that dramatic ETF flows have historically preceded market corrections that eventually revert to mean behavior. He pointed out that, except for an exceptional inflow following Trump’s win on November 7th, such “big red numbers” typically trigger panic selling that sets the stage for a subsequent rebound.

Adam’s view is that the current situation might be an overreaction: once the initial wave of selling subsides, the market could stabilize or even see a relief rally. This perspective is built on historical precedents where similar episodes did not lead to sustained downturns, suggesting that the prevailing sentiment could eventually turn contrarian.

“Except for November 7th, when large inflows followed Trump’s win, every other occurrence of outsized inflows or outflows has been a mean-reverting signal. Generally, people see a big red number and start panic selling, or vice versa, which ends up sending the market in the opposite direction,” Adam stated.

Adding further complexity to the picture is the evolving dynamics in the futures markets. Zaheer Ebtikar, Chief Investment Officer and founder of Split Capital, connects the dots between ETF outflows and futures pricing. Until recently, CME Futures were trading at nearly double the premium of conventional cryptocurrency exchanges. However, a recent correction saw the futures premium dip below 5%—a level approaching the risk-free rate.

Ebtikar noted that this correction has been pivotal. As the futures premium normalized, market participants appeared to “throw in the towel” on Bitcoin ETFs, with CME Futures open interest falling to its lowest since the last election cycle. This decline in open interest, accompanied by near-record trading volumes on the CME, points to a shift in sentiment where investors are increasingly cautious about holding ETFs while still engaging in futures speculation.

The interplay between a shrinking futures premium and rising futures volume creates a paradox. “In a paradoxical way, futures premium down = futures start getting bid and ETFs start dumping. The final tell here was CME Futures volume in the past couple of days reaching near record highs since the election,” Ebtikar concluded.

Macro Headwinds

Macroeconomic unease is also dragging on crypto and traditional markets alike. Singapore-based QCP Capital describes the situation as a “global risk-off move” affecting equities, gold, and BTC, amid growing whispers of stagflation. Consumer sentiment has taken a hit, suggested by a weaker-than-expected Consumer Confidence Index of 98 (versus 103 expected), while the US administration’s newly confirmed 25% tariffs on Canadian and Mexican imports—effective March 3—have further dampened sentiment.

As QCP Capital sees it, investors are growing wary of potential trade escalations and elevated inflation, which together create an atmosphere of uncertainty. The once-crowded “Magnificent 7” equity trade is unraveling, and “long crypto” has also been identified as one of the most overextended positions. In choppy markets, crypto is often the first to be liquidated, reinforcing the negative price action.

Looking ahead, QCP Capital points to a pair of key events that could set the tone. The NVIDIA earnings and this week’s PCE print. Results from the chipmaker, which has ridden the wave of AI-driven demand, could trigger another leg down if guidance disappoints. The upcoming Personal Consumption Expenditures (PCE) data is forecast at 2.5% year-over-year, still above the Federal Reserve’s 2% target. Until inflation convincingly trends lower, the Fed is likely to keep rates steady. Markets currently price two rate cuts in 2025, the first in June or July.

QCP Capital warns that markets remain fragile, advising caution as consumer and retail sentiment surveys—often leading indicators—could provide early signals of a stagflationary trajectory.

At press time, BTC traded at $87,818.

Featured image created with DALL.E, chart from TradingView.com