Bitwise Advisor Reviews the February 5th Plunge: Bitcoin's Decline Likely Stemmed from Traditional Financial De-leveraging, 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 posits that this volatility was more likely triggered by risk unwinding and derivative mechanisms within the traditional financial system, 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 trades 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, leading to rapid, indiscriminate de-leveraging due to risk management requirements. This process impacted Bitcoin-related positions and amplified the decline further on February 5th.

He analyzed that despite the price dropping over 13% at one point within two days, while the market 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 originated 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 de-leverage 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 began covering their positions on February 6th, the Bitcoin price rebounded.

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