Who is selling BTC?
Overnight BTC (Bitcoin) tested 65k support downwards, failed to penetrate it and pulled back to the 66k line. Since the new highs in March and halving in April, BTC has continued to oscillate sideways in the 60k-72k range. in early May it briefly broke down through 60k to 56k, but pulled back into the oscillator range after just two days.
Generally speaking, there are two types of non-neutral sellers in the market: the OG (Old Guns) group, specifically referring to ancient BTC participants who hoarded a large amount of low-cost chips in their hands; and the miners (miners) group, who produce a net amount of BTC and are forced to sell it by the cost pressures brought about by arithmetic depletion, resulting in an increase in market supply.
Essentially, if market exchange is viewed as free, then it is neutral. The two categories above are, in fact, one and the same, both incremental mined by miners. It's just that one is old and one is freshly mined. That said, for the market, the non-neutral event is actually the production of BTC, i.e. the increase in quantity. (Losses may be too, but you usually can't distinguish them from long term HODLs.)
When the 4-yearly production halving event occurs, miners either proactively adjust their production schedules, or reactively to the sudden rise in costs, and dump large amounts of BTC into the market, which often results in a retraction of the market price around the time of the halving. If this time happens to be overlaid with negative external macroeconomic factors, it may result in a more dramatic retracement, which can lead to intense deleveraging (burst positions).
Things have changed since that 2017 bull market. The rise of the contract (futures) market has introduced a large number of "naked short" sellers to the market. They don't hold any spot BTC, only USD (stablecoin), and sell "non-existent" BTC in the market, which is also known as "paper BTC". This is a metaphor, but in reality, the operation is to borrow BTC and sell them, overcollateralized by stablecoins or other assets, in the expectation that they will be repaid by buying them at a lower price when the price drops, and thus making a profit.
As you can see from the light blue curve at the bottom of the chart, the number of spot BTC on exchanges has been steadily decreasing since 2020. However, if we add "paper BTC" to the mix, we see that the total amount of paper BTC plus spot BTC, shown in purple, reached a localized peak in the late bull market of 2021 until the bottom of the bear market in 2022.
Arguably, each paper BTC comeback (white dashed arrows in the graph) led to a localized pullback in the market.
The speculative behavior of naked short selling overdrew the purchasing power of the market, preventing it from repeating the kind of exponential growth of past cycles with an equal influx of purchasing power.
On the other hand, according to {6.12 Insider: The Truth About the Funding Side of US Spot BTC ETFs}, the vast majority of the US spot ETFs that have rapidly accumulated nearly a million BTC are also not long-term hoarder positions, according to the most recent analysis of the data, but rather are tools used by hedge funds for speculative arbitrage. It is estimated that as much as 2/3 of the ETF inflows are from hedge funds' cash and carry trades.
The chart below shows us the impact that "paper BTC" has had across the market over the course of a bull/bear cycle since the 2020 bear market.
For this type of arbitrage trade, spot ETF positions are simply a hedge against shorting in the futures market. This makes a large portion of ETF inflows actually neutral without the liquidity crunching and pulling effect that real hoarders have.
In this way, another portion of the net loss of spot on crypto exchanges actually goes to ETFs. it's a change of scenery, moving the arbitrage trade that was originally on crypto exchanges to ETFs and the U.S. stock market.For this type of arbitrage trade, spot ETF positions are simply a hedge against shorting in the futures market. This makes a large portion of ETF inflows actually neutral without the liquidity crunching and pulling effect that real hoarders have.
In this way, another portion of the net loss of spot on crypto exchanges actually goes to ETFs. it's a change of scenery, moving the arbitrage trade that was originally on crypto exchanges to ETFs and the U.S. stock market.
The gameplay hasn't changed. The people making money and the people making fees have changed. Originally it was the crypto exchanges that made money. Now it's Wall Street making money.
It's only the spot market that suffers. People who are looking forward to BTC to continue to record highs will have to be more patient and wait for more real long-term hoarders and long-term investment funds to enter the market.