Bitwise advisors recap the February 5th crash: Bitcoin's decline may have stemmed from traditional financial deleveraging, rather than crypto fundamentals.

Bitwise advisor Jeff Park analyzed the sharp drop in Bitcoin and the crypto market on February 5th, arguing that the volatility was more likely triggered by risk mitigation within the traditional financial system and derivatives mechanisms, rather than by the fundamentals of the crypto industry itself or a single "black swan" event. Park pointed out that Bitcoin ETFs, especially IBIT, saw record trading volumes and options activity that day, with options trading clearly dominated by bearish positions. Furthermore, Bitcoin's price movements had been highly correlated with risk assets such as software stocks in previous weeks. February 4th was marked by Goldman Sachs' prime brokerage (PB) division as a day of extreme drawdown for multi-strategy funds, subsequently requiring rapid and indiscriminate deleveraging for risk management. This process impacted Bitcoin-related positions and further amplified the decline on February 5th. He analyzed that although prices fell by more than 13% within two days, and the market initially expected large-scale ETF outflows, actual data showed that Bitcoin ETFs as a whole actually recorded net inflows, with IBIT adding approximately 6 million units, increasing its size by over $230 million. This indicates that the selling pressure primarily stemmed from "paper money" and non-directional trading related to hedging and market making, rather than a long-term capital outflow. Jeff Park further hypothesizes that multi-asset portfolios were forced to deleverage in a highly correlated environment, including hedging exposure to Bitcoin; rapid liquidation of options and basis trading triggered a short-term gamma effect, forcing counterparties to sell IBIT during the decline, thus exacerbating volatility, but without resulting in a substantial long-term capital outflow. Bitcoin prices rebounded on February 6th as some neutral strategies replenished their positions. He concludes that this decline is more likely a result of the resonance between traditional financial system risk management and derivatives mechanisms, rather than a structural deterioration in the crypto market itself. Changes in ETF net inflows in the following days will be a crucial indicator for determining whether new long-term demand has emerged.