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

Odaily News Bitwise advisor Jeff Park published an analysis reviewing the sharp decline in Bitcoin and the crypto market on February 5th, suggesting that this volatility was more likely triggered by risk unwinding in the traditional financial system and derivatives mechanisms, rather than by the crypto industry's own 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 clearly skewed towards the bearish side. Concurrently, Bitcoin's price movement 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 affected 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 large-scale ETF outflows, actual data showed that Bitcoin ETFs overall recorded net inflows instead. IBIT added approximately 6 million new shares, increasing its size by over $230 million. This indicates that 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; the rapid unwinding of options and basis trades triggered a short gamma effect, forcing counterparties to sell IBIT during the decline, thereby exacerbating volatility, but it 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 was more likely a result of the resonance between traditional financial system risk management and derivatives mechanisms, rather than a structural deterioration of the crypto market itself. The changes in ETF net flows in the following days will be a key indicator for judging whether there is new long-term demand.