Edited by Wu Blockchain Blockchain
Market turmoil sparks rumors
In early February 2026, the cryptocurrency market experienced a sharp correction, with Bitcoin falling to around $60,000, its lowest level since November 2024. This sell-off was highly synchronized with cross-asset deleveraging in traditional financial markets, with a significant decline in the stock market and a sharp drop in precious metals—silver recorded a record single-day decline, and gold experienced its largest single-day drop since the early 1980s. Analysts generally believe that this round of cryptocurrency market decline was mainly due to increased macroeconomic uncertainty (such as the hawkish nomination of the Federal Reserve Chairman) and large-scale outflows of ETF funds.
Against this backdrop, a theory began circulating on crypto social media that the sharp sell-off was not entirely driven by macroeconomic factors, but rather stemmed from a large fund being liquidated and forced to close its Bitcoin positions. One speculation points to a Hong Kong hedge fund involved in Bitcoin options trading. Several industry insiders subsequently joined the discussion, offering clues while also expressing clear skepticism.
Parker's assumptions: early Bitcoin long-term holders, IBIT, and volatility squeeze
Crypto commentator Parker (@TheOtherParker_) has offered an explanation linking the recent decline to changes in how large long-term holders (early Bitcoin long-term holders) manage their assets.
He pointed out that on July 29, 2025, US regulators officially approved the physical creation and redemption mechanism for Bitcoin ETFs, allowing investors to directly exchange real BTC for ETF units, and vice versa. This enables large holders to transfer Bitcoin into ETFs (such as the iShares Bitcoin Trust, often called IBIT) under potentially tax-free and near-zero slippage conditions, thereby utilizing the regulated options market.
According to Parker's observations, IBIT's options market quickly developed into one of the most liquid options markets globally, second only to SPY, QQQ, and SPX index options. This attracted a large number of Bitcoin whale to deploy covered call and volatility selling strategies on their ETF holdings. Throughout the summer of 2025, the market observed a large-scale migration of early Bitcoin long-term holders, while Bitcoin's realized volatility, implied volatility, and overall trading volume all experienced a significant collapse. In Parker's view, this large-scale options writing and selling activity effectively compressed market volatility continuously.
This apparent calm was shattered by the crash on October 10, 2025 (10/10). Parker speculates that at least one or more funds selling volatility on IBIT were hit hard when volatility suddenly spiked.
In his hypothesis, a fund comprised of early Bitcoin long-term holders might have been running a covered call strategy on a massive IBIT position—a strategy that had been effective until October 10th when it completely wiped out short volatility positions, causing significant losses. This initial liquidation could be the starting point for a series of chain reactions, especially as the fund subsequently attempted to quietly repair its balance sheet in the months that followed. Parker emphasizes that this is merely an assumption based on scattered clues and currently lacks direct evidence.
Franklin Bi: A Macro Trader Hidden in Asia?
Franklin Bi, a partner at Pantera Capital, offered another perspective. He speculated that the real problem might not lie with crypto-native funds at all, but rather with a large, traditional trading firm headquartered in Asia that also participates in crypto trading.
Because these institutions have virtually no native crypto counterparties, even if they suffer huge losses, they may not be immediately noticed by the crypto community. He outlined a possible chain of events: the institution previously engaged in market-making transactions on platforms such as Binance, while using cheap funds (possibly from yen arbitrage) to maintain leverage; subsequently, the rapid appreciation of the yen, coupled with the Bitcoin liquidity shock on October 10th, caused a substantial impact on its balance sheet, triggering margin pressure; afterwards, the institution may have been given a buffer period of about 90 days to try to repair the situation; during this period, it turned to the gold and silver markets to try to make up for previous losses, but recently silver plummeted by about 20% in a single day, and gold also fell in tandem, further worsening its situation; finally, in early February 2026, it was forced to liquidate its remaining crypto positions, triggering this round of concentrated Bitcoin sell-off.
Franklin acknowledged this was merely speculation but considered it "a plausible sequence of events." This also explains why no one on crypto Twitter noticed it beforehand, as the player wasn't part of the traditional crypto fund circle. Parker also pointed out that some 13F filings show that some funds are almost 100% allocated to IBIT, possibly to isolate the risk of a single trade. If one of these single-asset funds were to go bankrupt, it would fit the above profile.
There is still a lack of hard evidence. Parker said the real key evidence would be a large fund’s IBIT holdings going to zero in a Q1 2026 13F filing, but the relevant documents will not be released until mid-May.
Due to some community speculation that this Asian fund might be affiliated with Li Lin, Huobi founder Li Lin responded on his WeChat Moments on February 8th, stating that he is not an investor in LD or Garrett Gin, and that he did not reduce his BTC or ETH holdings during this market rally. He also stated that he has been repeatedly subjected to rumors in recent years and has had to clarify these matters repeatedly.
According to the latest SEC 13F report, as of the end of the third quarter of 2025, Avenir Group, founded by Li Lin, held 18,297,107 shares of IBIT, with a market value of $1.189 billion, an increase of about 18% from the previous quarter, and has been the largest institutional holder of Bitcoin ETF in Asia for five consecutive quarters.
Industry skepticism: The views of Wintertermute's CEO
Wintermute CEO Evgeny Gaevoy expressed strong skepticism about the "someone's account liquidation" claim. He pointed out that if a large institution were to collapse, news would typically spread rapidly through private channels within the industry. Previously, when 3AC and FTX experienced their collapses, internal warnings were issued within days, but no similar signs have been observed this time; currently, all rumors originate from anonymous accounts.
He also emphasized that compared to the risks hidden in unsecured lending platforms such as Genesis and Celsius in the previous cycle, crypto leverage is now mainly concentrated in the perpetual contract system of exchanges, which is more transparent and orderly. Exchanges have introduced automatic liquidation and stricter margin management, making it more difficult to cover up large-scale liquidations in the long term.
He also suspects the existence of exchange-level problems similar to FTX, pointing out that no institution will replicate that model after FTX. Furthermore, if an institution is actually bankrupt but publicly denies it, it will face severe criminal charges in the US, UK, EU, or Singapore, which significantly reduces the likelihood of long-term concealment of bankruptcy.
In his view, this round is more likely just a market correction caused by the combination of macroeconomic pressures and liquidation of highly leveraged traders: "Maybe someone got liquidated, but there has been no systemic spillover that we should pay attention to."
BitMEX co-founder Arthur Hayes stated that the recent Bitcoin decline may primarily stem from hedging activities by dealers surrounding IBIT structured products. He pointed out that bank-issued structured notes can trigger concentrated hedging at specific points, leading to rapid price volatility. He cautioned market participants to adjust their strategies promptly in response to changes in market mechanisms. He asserted that BTC derivatives do not cause price volatility, but rather amplify it in both directions. There is no secret conspiracy behind the cryptocurrency market crash. Without government bailouts, the market can quickly weed out over-leveraged investors and resume its upward trend.
Conclusion: The truth has yet to emerge.
The true cause of the Bitcoin crash in early February 2026 remains unresolved. Macroeconomic factors undoubtedly played a significant role, but the persistence of the decline and the scale of some unusual transactions continue to prompt the market to search for a more specific trigger.
There are currently two main explanations: one is that early long-term Bitcoin holders continuously sold volatility through ETF structures, suffered a fatal blow after experiencing a sharp reversal on 10/10, and were recently forced to complete the final deleveraging; the other is that the failure of TradFi's cross-asset trading spread from the yen arbitrage to the crypto and precious metals markets, triggering a chain of margin pressures, which were ultimately reflected in the concentrated sell-off of Bitcoin.
As of now, there are no publicly available documents, official disclosures, or explicit loss figures to corroborate any of these claims. Several industry insiders have urged caution, noting that if structural problems do exist, their impact will ultimately become apparent through internal industry information flow or subsequent 13F filings.
Regardless of the final answer, this incident once again demonstrates the deep integration of the crypto market with the traditional financial system. The impact may not necessarily originate from crypto-native institutions; macroeconomic leverage and cross-asset risks could also have a substantial impact on digital assets. And before the facts are clarified, various speculations are easily amplified.
As many industry insiders have repeatedly emphasized, a low-liquidity environment coupled with high leverage often amplifies market volatility.
This point is being re-verified by the market in 2026.
