<div id="readability-page-1"><div><div>Author: Jeff Park; Translator: Deep Tide TechFlowIn this lengthy article, Jeff Park, advisor at Bitwise and chief investment officer at ProCap, reviews the true reasons behind Bitcoin's 13.2% plunge on February 5th. He argues that this wasn't a fundamentally driven sell-off, but rather a technical chain reaction of collapses triggered by deleveraging in traditional financial multi-strategy funds and amplified by short-selling gamma in the options market. The most crucial data: IBIT's trading volume broke a record $10 billion that day, but ETFs saw net inflows. This analysis is invaluable for understanding the deep integration of Bitcoin with traditional capital markets.At the end of the article, the author also commented that if you accept this opportunity, an excellent opportunity is right in front of you.<img src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432764_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="240" original-src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432764_watermarknone.png"/><h2>What exactly happened on February 5th?</h2>As more data comes out, one thing becomes increasingly clear: that dramatic sell-off was related to the Bitcoin ETF, and it occurred on one of the worst days in the capital markets.How do we know? Because IBIT set a record for trading volume (over $10 billion, twice the previous record), and options trading volume also reached the highest number of contracts since the ETF's listing. Slightly different from the past, this options activity was dominated by put options, with trading volume clearly skewed towards sellers. This will be discussed later.<img src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432765_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="302" original-src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432765_watermarknone.png"/>Caption: IBIT historical trading volume data, 2/5 recorded a record high<img src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432766_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="327" original-src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432766_watermarknone.png"/>Caption: IBIT total options trading volume, the number of contracts on that day reached the highest since the ETF was listedMeanwhile, IBIT Price movements in software stocks and other risky assets have shown a strong correlation over the past few weeks. Goldman Sachs' PB (Prime Brokerage) data also shows that February 4th was one of the worst-performing days ever for multi-strategy funds, with a z-score of 3.5. What does this mean? This is a 0.05% probability event, 10 times rarer than a 3-standard-deviation event. It's arguably catastrophic. <img src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432767_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="582" original-src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432767_watermarknone.png"/>Caption: Source: Goldman Sachs FICC and Equities and Prime Services, data as of February 4, 2026. Past performance is not indicative of future results.After every event of this magnitude, the risk managers of the Pod Shop (the various trading groups under the multi-strategy fund) would jump in and demand that everyone immediately reduce their positions without any explanation. This explains why February 5th was also a bloodbath.After every event of this magnitude, the risk managers of the Pod Shop (the various trading groups under the multi-strategy fund) would jump in and demand that everyone immediately reduce their positions without any explanation. This explains why February 5th was also a bloodbath. ... The Anomaly in IBIT Fund Flows Given the record-breaking activity and price action that day (down 13.2%), we would have expected to see net redemptions. Referring to historical data: on January 30th, IBIT fell 5.8% the previous day, recording a record-breaking -$530 million in redemptions; on February 4th, it saw -$370 million in redemptions during a continuous decline. Logically, an outflow of $500 million to $1 billion would seem reasonable. However, the opposite occurred; we saw widespread net subscriptions: IBIT added approximately 6 million units, and AUM increased by over $230 million. Other ETFs also recorded inflows, totaling over $300 million and still increasing. This is puzzling. You could argue that the strong rebound on February 6 reduced some outflows, but turning that into net subscriptions is a completely different matter. This suggests that multiple factors are at work simultaneously, but they don't point to a single narrative. Based on the information currently available, several hypotheses can be made: The Bitcoin sell-off triggered a multi-asset portfolio or strategy that is not purely crypto-native (it could be the aforementioned multi-strategy hedge fund, or a model portfolio like BlackRock's that allocates between IBIT and IGV, triggering automatic rebalancing after the sharp fluctuations). The acceleration of the Bitcoin sell-off is related to the options market, especially the downward direction. The sell-off did not lead to a final outflow of Bitcoin assets, meaning that most of the activity was &#34;paper money&#34; operations dominated by market makers and dealers, and these positions are generally hedged. My Hypothesis Based on these facts, my hypothesis is as follows: The catalyst was widespread deleveraging in multi-asset funds/portfolios, driven by statistically anomalous levels of downside correlation in risky assets. This led to dramatic deleveraging, including in Bitcoin, but much of the Bitcoin risk was actually hedged by &#34;delta-neutral&#34; positions. For example, basis trading and relative value trading (pegged to crypto stocks) typically hedged residual delta within the market maker community. Deleveraging triggered some short-selling gamma effects, creating a compound acceleration in the downside. Market makers needed to sell IBIT, but the sell-off was so intense that they had to short Bitcoin without inventory. This actually created new inventory, reducing the expected large outflow. Then, on February 6th, positive IBIT inflows occurred, with buyers (the specific type of buyers is still uncertain) buying on dips, further offsetting the potential small net outflow. Starting with the correlation of software stocks, I tend to believe the catalyst came from the sell-off in software stocks, as the correlation even extends to gold. See the two images below:<img src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432768_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="407" original-src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432768_watermarknone.png"/>[Image: GLD vs IBIT Correlation Chart (Bloomberg Terminal Screenshot)]Caption: Comparison of price trends between GLD (Gold ETF) and IBIT<img src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432769_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="476" original-src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7432769_watermarknone.png"/>Caption: Price trend comparison of IGV (Software ETF) and IBITThis makes sense to me. Gold is not generally an asset used by multi-strategy funds for leveraged trading, but it may be part of the RIA (Registered Investment Advisor) model portfolio. So this confirms that the core of the event is more likely multi-strategy funds.<h2>The Collapse of CME Basis Trading</h2>This leads to the second point: the drastic deleveraging included hedged Bitcoin risk.The collapse of CME basis tradingThis leads to the second point: the sharp deleveraging included hedged Bitcoin risk. ... Let's take CME basis trading, a favorite among Pod Shops, as an example: [Image: CME BTC basis data table (30/60/90/120 days)] Caption: CME BTC basis data from January 26th to February 6th, thanks to @dlawant for providing it. Looking at the complete dataset reveals the phenomenon—the near-month basis surged from 3.3% for 2/5 to 9% for 2/6. This is one of the largest jumps we've observed since the ETF's inception, essentially confirming what happened: basis trades were forcibly liquidated under orders. Consider giants like Millennium and Citadel, who were forced to liquidate their basis trading positions (selling spot and buying futures). Given their size within the Bitcoin ETF ecosystem, you can understand why they've been hyped so much. Structured Products: The &#34;Fuel&#34; for the Downside This brings us to the third leg. Now that we understand the mechanism behind IBIT's sell-off during widespread deleveraging, what accelerated the decline? One possible contributing factor is structured products. While I don't believe the structured products market is large enough to single-handedly handle this sell-off, it's entirely possible that when all factors align perfectly in a way that no VaR model could predict, it could become the trigger for a chain reaction of liquidations. This immediately reminded me of my time working at Morgan Stanley—knock-in put barrier options could, under certain circumstances, allow delta to exceed 1, a situation that the Black-Scholes model simply did not consider for ordinary options. [Image: JPM's structured notes priced last November] [Caption: JPM structured notes, the barrier price is around 43.6] Looking at the notes priced by JPM last November, the barrier price is around 43.6. If Bitcoin drops another 10% in December, many barriers will fall in the 38-39 range—right at the center of this storm. When these barriers are overcome, if market makers use a combination of short put options to hedge knock-in risk, gamma changes extremely rapidly, especially under negative vanna (volatility sensitivity) dynamics. Market makers are forced to aggressively sell the underlying asset during a downturn. This is what we've seen: implied volatility (IV) has collapsed to historical extremes, almost reaching 90%, indicating a catastrophic squeeze. In this scenario, market makers may have had to short IBIT heavily, ultimately creating a net increase in share volume. This part requires some imagination and is difficult to confirm without more spread data. However, given the record trading volume, authorized participants (APs) involvement is entirely possible. The superposition of crypto-native short gamma: Adding another factor: due to persistently low volatility in recent weeks, clients in the crypto-native community have been buying put options. This means that crypto market makers are naturally in a short gamma state, essentially selling options at excessively low prices. When unexpected large fluctuations occur, the downside is further amplified. [Image: Market Maker Gamma Position Distribution Chart] [Caption: Market makers mainly hold short gamma positions in put options in the 64k-71k range.] By February 6th, Bitcoin had completed a heroic rebound of over 10%. An interesting phenomenon is that CME's open interest (OI) is expanding much faster than Binance's. [Image: Comparison of CME vs Binance OI Changes] [Image caption: Thanks to @dlawant for providing hourly snapshot data, aligned to 4 PM Eastern Time] As you can see, OI dropped sharply from February 4th to February 5th (further confirming that CME basis trading was liquidated on February 5th), but rebounded on February 6th, possibly to take advantage of the higher basis level and neutralize the outflow effect. This puts the picture together: IBIT subscriptions/redemptions were roughly balanced because CME basis trading recovered net; but prices were lower because Binance's open interest (OI) collapsed, meaning a lot of deleveraging came from crypto-native short gamma and liquidations. Conclusion: Not a fundamental event. So this is my best theory about what happened on February 5th and 6th. It has some assumptions and isn't entirely satisfactory—because there's no single &#34;culprit&#34; like FTX to blame. The core conclusion is that the catalyst came from non-crypto traditional financial risk-averse operations, which happened to push Bitcoin to a level where short-selling gamma accelerated the decline through hedging activities (rather than directional trading), leading to a need for more inventory – which quickly reversed the market-neutral positions in traditional finance on 2/6 (unfortunately, crypto directional positions did not recover in tandem). While this answer isn't entirely satisfying, it at least confirms that yesterday's sell-off was unrelated to 10/10. <h2>Refuting the &#34;Hong Kong Fund Yen Carryover&#34; Theory</h2>I don't believe last week's events were a continuation of the 10/10 deleveraging. Some have mentioned that a non-US Hong Kong fund might have been involved in a yen carry trade and suffered a margin call. This theory has two major flaws:First, I don't believe a non-crypto prime broker could simultaneously offer such complex multi-asset trading services with a 90-day margin buffer; they would have already run into trouble before risk controls tightened.Second, if the leveraged arbitrage was used to buy IBIT options to &#34;recover losses,&#34; then a Bitcoin drop wouldn't lead to an accelerated decline—the options would simply become out-of-the-money (OTM) and the Greeks would go to zero. This means the trade must involve downside risk. If you were shorting IBIT put options while simultaneously going long on USD/JPY carry trades—that prime broker deserved to go bankrupt.The next few days are crucial. The next few days are very important because we will see more data to determine whether investors are using this pullback to create new demand, which would be a very bullish signal. Currently, the outlook for ETF flows is very encouraging. I have always believed that true RIA-style ETF buyers (not relative value hedge funds) are diamond hands. We are seeing a lot of institutional push in this area, including what the industry and my colleagues at Bitwise are doing. To verify this, I am watching for net inflows that are not accompanied by basis trading expansion. The fragility of traditional finance is the antifragility of Bitcoin. Finally, this also tells you that Bitcoin is now integrated into financial capital markets in a very complex way. This means that when we are positioned to experience a squeeze in the opposite direction, the rise will be more vertical than ever before. The fragility of traditional financial margin rules is Bitcoin's antifragility. Once a reverse price surge occurs—which I believe is inevitable, especially now that Nasdaq has increased the open interest limit for options—it will be spectacular.</div></div></div>

IBIT

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On February 5th, Bitcoin experienced a 13.2% drop, attributed to a technical chain reaction from deleveraging in traditional multi-strategy funds, rather than a fundamental sell-off. Despite the plunge, IBIT saw record trading volumes and net inflows, indicating complex interactions between Bitcoin and traditional markets. The sell-off was exacerbated by short-selling gamma in the options market, leading to a significant but hedged impact on Bitcoin assets. The analysis suggests that the event was driven by unusual correlations in risky assets, prompting rapid deleveraging across portfolios.

- Jeff Park analyzes Bitcoin's 13.2% drop on February 5, attributing it to a technical chain reaction from deleveraging in multi-strategy funds and options market dynamics, rather than fundamental causes.  
- Although record trading volumes and increased ETF inflows occurred, the analysis suggests complex interactions influenced the sell-off, involving traditional finance's risk-averse actions affecting Bitcoin's market position.  
- Park emphasizes Bitcoin's integration with financial markets, predicting a potential rapid upward movement when conditions favor a market rebound.

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A recap of the true causes of the BTC flash crash on February 5th: Traditional funds were liquidated, and the cryptocurrency market was also affected.