Thanks @Phyrex_Ni for the discussion. Here's an example of an arbitrage process:

Thanks to @Phyrex_Ni for the discussion—let’s give an example of an arbitrage process:

1、The spot ETF IBIT gets liquidated, with funds selling in large volume $IBIT, and the shares are sold at a discount.

2、（Between the $IBIT stock price）vs（the net BTC value contained in each share of $IBIT））there’s a certain spread—then arbitrageurs buy the discounted $IBIT and sell BTC in the BTC spot/futures market to carry out the arbitrage.

3、Selling BTC doesn’t require a market maker/arbitrageur to hold BTC—for example, they can borrow BTC spot to sell, or use a U-margin contract to short BTC. As long as the arbitrageur has enough dollars, they can sell enough BTC.

4、This is how the $IBIT sell-off is transmitted to BTC selling—for instance, when a fund gets liquidated, $IBIT worth a total of 95 cents on the dollar (i.e., a 5% discount) corresponding to roughly 60k BTC gets crushed; all of it is bought by the arbitrageurs, who simultaneously sell 60k BTC in the BTC spot/futures market.

5、The arbitrageur waits for the $IBIT discount to recover, then sells the $IBIT at the normal price + simultaneously closes out the equivalent short positions. During this process, no $IBIT redemption into BTC occurs.

6、If the $IBIT discount doesn’t recover for a long time, or if the arbitrageur has taken on too much $IBIT and creates risk by draining liquidity, then the arbitrageur will redeem the $IBIT into BTC, then sell the spot BTC + close the equivalent short positions.

5 is the arbitrageur’s main trading method, while 6 is a special case. Suppose a fund dumps 60k BTC; then maybe 54k BTC are all hedged away, and only 6k BTC will go through the redemption-to-spot route.