Bitwise Advisor reviews the February 5 crash: Bitcoin's decline may stem from traditional financial deleveraging rather than crypto fundamentals

Odaily Planet Daily reports that Bitwise advisor Jeff Park reviewed the sharp decline in Bitcoin and the crypto market on February 5th. He believes this volatility was more likely triggered by risk unwinding in the traditional financial system and derivatives mechanisms, rather than the fundamental health of the crypto industry or a single “black swan” event.

Jeff Park pointed out that on that day, Bitcoin ETFs, especially IBIT, experienced record-breaking trading volume and options activity, with options trading predominantly in a bearish direction. At the same time, Bitcoin’s price movement over the previous weeks was highly correlated with risk assets like software stocks. February 4th was marked by Goldman Sachs’ prime broker (PB) department as a day of extreme drawdowns for multi-strategy funds. Subsequently, risk management requirements prompted rapid, indiscriminate deleveraging, which affected Bitcoin-related positions and further amplified the decline on February 5th.

He analyzed that although the price dropped over 13% within two days and the market initially expected large-scale ETF outflows, actual data showed that Bitcoin ETFs experienced net inflows overall. IBIT added approximately 6 million shares, increasing by over $230 million in scale. This suggests that the selling pressure mainly came from “paper funds” and non-directional trading related to hedging and market making, rather than long-term capital withdrawals.

Jeff Park further hypothesized that: in a high-correlation environment, multi-asset portfolios are forced to deleverage, including Bitcoin risk exposure after hedging; rapid liquidation of options and basis trades triggered a short gamma effect, forcing counterparties to sell IBIT during the decline, thus exacerbating volatility, but without causing substantial long-term capital outflows. As some neutral strategies covered positions on February 6th, Bitcoin’s price rebounded.

He summarized that this round of decline is more likely the result of resonance between risk management in traditional finance and derivatives mechanisms, rather than a fundamental deterioration of the crypto market itself. The subsequent changes in ETF net flows over the next few days will be an important indicator to assess whether there is new growth demand.