Bitcoin Sees 11% Drop on Regulatory News, Wiping Out Billions in Open Interest

The Bitcoin carry trade has become unprofitable as basis rates have plummeted. After staying under 5.5% annualized throughout the year, basis dropped below 2% last month—making the trade unattractive compared to Treasury yields. **Key Developments:** - CME futures open interest hit its lowest level since Bitcoin ETFs launched in early 2024 - Funding rates are beginning to tick upward - Basis needs to widen significantly for institutional traders to return - TradFi participants require sustained basis above ~5% to engage in delta-neutral trades **Market Sentiment Shifts:** Meanwhile, Bitcoin put/call open interest ratio dropped to 0.56—the lowest of 2026—suggesting traders are removing downside protection. Implied volatility remains under 40% despite next week's FOMC meeting, potentially signaling improving sentiment. The leveraged bid will likely stay on the sidelines until basis rates sustainably recover to more attractive levels.

Bitcoin ETFs experienced a sharp reversal, recording **$465 million in outflows** across Thursday and Friday, breaking a seven-session streak that had brought in $1 billion. **Key factors:** - Probability of a rate hike at Wednesday's FOMC meeting jumped from 12% to 38% - The seven-day inflow run was the longest in 21 weeks - BTC is testing $68k resistance level **What's next:** All eyes turn to Wednesday's Federal Reserve meeting. The resumption of ETF buying will likely depend on the central bank's decision and guidance. ETF flows remain the primary demand driver for Bitcoin, with strong correlation to 30-day returns since their launch. However, current inflow levels alone aren't sufficient to drive price action—macro factors continue to dominate market direction.

**Major milestone for Bitcoin scalability**: Ark protocol implementations from Ark Labs and Second are now live on Bitcoin mainnet, alongside Lightning's similar Wavelength toolkit. **Key achievement**: The protocol operates entirely on Bitcoin's existing infrastructure - no consensus changes or network upgrades required. This represents a significant breakthrough, as Ark was previously thought to need modifications to Bitcoin itself. **What is Ark**: A Layer 2 scaling solution designed to improve Bitcoin's transaction efficiency and privacy without altering the base layer protocol. This development demonstrates Bitcoin's flexibility through creative use of existing primitives like Taproot.

Bitfinex has secured its final regulatory licence in El Salvador, achieving full coverage across spot trading, derivatives, and securities operations. The exchange now holds comprehensive authorisation in one of the world's most crypto-forward jurisdictions. CTO Paolo Ardoino emphasised the milestone reflects the company's ongoing regulatory commitment. El Salvador has positioned itself as a deliberately constructed digital asset jurisdiction since adopting Bitcoin as legal tender. Bitfinex previously obtained licences for derivatives and tokenised securities in the country before completing its regulatory framework with the spot trading approval. [Read the full announcement](https://blog.bitfinex.com/announcements/bitfinex-secures-licence-in-el-salvador/)

**Long-term bitcoin holders have nearly stopped taking profits**, marking a significant shift in market dynamics. - Sell-side pressure has eased for the first time since September 2025 - Holders stepping back while supply remains in loss territory - This pattern has historically indicated seller exhaustion during late-stage bear markets The reduced selling activity from long-term holders suggests a potential turning point in market sentiment. When experienced holders stop realizing losses, it often signals they believe current prices represent a bottom. This behavior contrasts sharply with earlier in 2025, when these same holders were actively taking profits and capping price rallies.