Bitcoin's 35% drop may be related to hedging and delevering surrounding the BlackRock IBIT Bitcoin ETF, amplifying volatility rather than being just a short-term reaction to macroeconomic factors.
In early January, inflows into large-cap Capital helped the market recover, but the subsequent crash revealed a strong " liquidation sweep" and deleveraging process. A prominent hypothesis is that institutional transactions related to IBIT fueled the rapid and deep selling pressure.
- The sharp drop in Bitcoin may have been amplified by hedging activity by banks involved in the IBIT Bitcoin ETF.
- February 5th saw the liquidation of leveraged IBIT positions, accompanied by record trading volume of $10.7 billion and $900 million in option fees.
- The 65% increase in inflows into IBIT and the Coinbase Premium Index suggests that institutions may be returning, supporting price stabilization.
IBIT hedging could be a catalyst for a wave of Bitcoin selling.
The core hypothesis is that part of the selling pressure comes from banks hedging against IBIT-linked products, forced to sell when Bitcoin prices fluctuate unfavorably.
Arthur Hayes , co-founder of BitMEX, argues that BTC is being heavily sold off because banks are hedging positions related to the IBIT Bitcoin ETF. He cites the example of Morgan Stanley's "structured note" linked to IBIT, which is essentially a bank-created product designed to bet on Bitcoin's volatility.
When BTC moves rapidly, risk management mechanisms may force the issuer/partner to sell to reduce potential losses. This easily creates a feedback loop: increased volatility → increased hedging demand → stronger selling in the short term, making the decline look more like a "structural breakdown" than a normal correction.
Besides Morgan Stanley, other large institutions outside the crypto sector are also believed to be conducting similar transactions, further increasing technical pressure during a period of market liquidation stress. This information was mentioned in a Chia about similar transactions , suggesting this may be a systemic phenomenon rather than an isolated case.
February 5th saw IBIT leverage removal with record volume and option premiums.
On February 5th, leveraged IBIT positions were forced to unwind, triggering a surge in trading activity with $10.7 billion in volume and $900 million in option fees.
The event was described as a “forced unwind” of IBIT-related positions. Intraday data showed the level of risk accumulation: volume reached $10.7 billion and option premiums reached $900 million, both the highest levels ever recorded in terms of original content.
In a market that has experienced weeks of weakness, a record trading session typically reflects two layers of activity: (1) mandatory position closing when margin is no longer sufficient, and (2) rebalancing of hedges by intermediaries. When these two layers coincide, price movements can be “overextended” in both directions.
The sharp increase in inflows into IBIT and the Coinbase Premium Index could signal a return of institutional investment.
IBIT recorded over $200 million in inflows for the first time in nearly a month, while the Coinbase Premium Index surged 65% in less than a week, suggesting improving institutional buying pressure.
Cash flow data from ETF tracking sources shows that IBIT recorded its first inflow of over $200 million in nearly a month. Simultaneously, Bitcoin's Coinbase Premium Index (CPI) surged 65% in less than a week, a factor often used by the market to gauge demand for US investors compared to other platforms.
Previously, when forced liquidation occurred, the market shifted to a risk-off state: CPI hit a monthly Dip , IBIT experienced a large outflow, and Bitcoin broke below the $80,000 support level . The reversal of these indicators in a positive direction could be an early signal that forced selling pressure has weakened.
However, this is only an initial sign. If the CPI maintains its upward trend along with net inflows into Bitcoin ETFs, the "bottoming Dip" scenario is more plausible. Conversely, if inflows are only intermittent while the CPI weakens again, the market may still be in a technical rebound phase.
Markets rarely fluctuate "randomly," and institutional shocks can recur.
Sharp declines are often linked to a narrative that triggers both psychological and technical mechanisms, so monitoring ETF money flow and CPI indicators helps assess the risk of recurrence.
The original text refers to a previous example: the October crash that saw Bitcoin drop 30%, linked to concerns that Strategy might be removed from MSCI, which triggered panic across risk assets. This case is cited by a link about the possibility of Strategy being removed from MSCI .
The common thread across these phases is that a sufficiently strong "narrative," combined with leveraged positions and institutional hedging behavior, can generate significant price movements in a short period. Therefore, metrics such as IBIT, volume/option activity, and CPI can Vai as early warning indicators of supply and demand shifts from institutional investors.
Frequently Asked Questions
Why might the IBIT Bitcoin ETF be related to Bitcoin's 35% drop?
One theory is that banks and institutions holding structured products tied to IBIT need to hedge against risk. When Bitcoin falls sharply, they may be forced to sell to protect their positions, thereby amplifying selling pressure and volatility.
What happened to IBIT on February 5th?
The original text indicated that leveraged IBIT positions were forced unwinded. This session recorded $10.7 billion in volume and $900 million in options fees, both record highs.
What does it mean if the Coinbase Premium Index rises 65%?
A sharp increase in CPI over a short period could reflect relatively stronger buying demand from US market-related trading channels. When coupled with inflows into Bitcoin ETFs like IBIT, this indicator is often XEM as a sign that institutions are returning or selling pressure has eased.
Is IBIT's inflow of over $200 million enough to confirm that Bitcoin has Dip ?
It's not enough to draw conclusions yet. This could be an early sign of improving sentiment and cash flow, but it's necessary to monitor the maintenance of inflows, CPI developments, and price reactions around key technical levels to assess the potential for sustainable stability.
