Bitwise Advisor Reviews February 5th Plunge: Bitcoin's Decline Likely Stemmed from Traditional Financial Deleveraging, Not Crypto Fundamentals

Odaily News Bitwise advisor Jeff Park published an analysis reviewing the sharp decline in Bitcoin and the broader crypto market on February 5th. He suggests the volatility was more likely triggered by risk unwinding within the traditional financial system and derivative mechanisms, rather than by crypto industry fundamentals or a single "black swan" event.

Jeff Park pointed out that on that day, Bitcoin ETFs, particularly IBIT, saw record-breaking trading volume and options activity, with options trading heavily skewed towards the put side. Concurrently, Bitcoin's price action had shown a high correlation with risk assets like software stocks in the preceding weeks. February 4th was marked by Goldman Sachs' Prime Brokerage (PB) division as a day of extreme drawdowns for multi-strategy funds, followed by rapid, indiscriminate deleveraging demands from risk management. This process impacted Bitcoin-related positions and further amplified the decline on February 5th.

He analyzed that despite the price dropping over 13% at one point within two days, while the market initially anticipated massive ETF outflows, actual data showed Bitcoin ETFs overall recorded net inflows instead. IBIT added approximately 6 million new shares, increasing its size by over $230 million. This indicates the selling pressure primarily came from "paper money" and non-directional trades related to hedging and market-making, rather than a withdrawal of long-term capital.

Jeff Park further hypothesized that multi-asset portfolios were forced to deleverage in a high-correlation environment, which included hedged Bitcoin exposure; rapid unwinding of options and basis trades triggered a short gamma effect, forcing counterparties to sell IBIT during the decline, thereby exacerbating volatility, but this did not lead to substantial long-term capital outflows. As some neutral strategies covered their positions on February 6th, the Bitcoin price rebounded.

He concluded that this round of decline is more likely the result of a resonance between traditional financial system risk management and derivative mechanisms, rather than a structural deterioration within the crypto market itself. Changes in ETF net flows in the following days will serve as a crucial observation indicator for determining whether there is new, sustained long-term demand.