Bitcoin's recent dramatic decline, which saw its value plummet by over 40% in a month, reaching a year-low of $59,930, has sparked intense speculation. Now valued at less than half of its October 2025 peak of approximately $126,200, analysts are exploring potential causes for this downturn. Notably, the involvement of Hong Kong hedge funds and U.S. bank products tied to Bitcoin ETFs are emerging as key factors.
The Role of Hong Kong Hedge Funds
A significant theory posits that the crash was instigated by hedge funds in Hong Kong. These funds reportedly engaged in leveraged bets on Bitcoin's continued ascent, utilizing options linked to Bitcoin ETFs such as BlackRock's IBIT. According to Parker White from DeFi Development Corp., these funds financed their bets by borrowing yen at low interest rates, converting it into other currencies, and investing in volatile assets like cryptocurrency. When Bitcoin's value stalled and borrowing costs rose, these leveraged positions unraveled, forcing a rapid sell-off that further drove down prices.
Banks and the Impact of Structured Notes
Another explanation is provided by Arthur Hayes, former CEO of BitMEX, who suggests that banks, notably Morgan Stanley, might have contributed to the sell-off. These banks, faced with exposure from structured notes linked to Bitcoin ETFs, had to sell Bitcoin to manage risks as prices fell. Such financial products obligate banks to sell underlying assets like Bitcoin when prices drop, exacerbating the decline due to increased selling pressure.
Miners Shifting Focus Amidst AI Boom
A less prominent theory suggests a shift among Bitcoin miners towards AI data centers, driven by rising demand in that sector. Analyst Judge Gibson noted that this transition has led to a significant decrease in Bitcoin's hash rate, ranging between 10% and 40%. This shift is exemplified by companies like Riot Platforms, which recently announced a strategic pivot, selling substantial Bitcoin holdings to invest in data centers. Additionally, the Hash Ribbons indicator, which tracks mining stress, signals potential financial strain for miners if Bitcoin's price continues to fall.
The Bigger Picture
The economic pressures are evident, with the average cost to mine a Bitcoin now estimated at around $58,160, while production expenses hover near $72,700. If Bitcoin's price dips below $60,000, miners could face significant financial challenges. Meanwhile, long-term Bitcoin holders appear cautious, as data reveals that wallets holding substantial amounts of Bitcoin are reducing their holdings, marking a nine-month low in supply control.
These insights reflect the complex interplay of market dynamics and strategic decisions that have influenced Bitcoin's recent price trajectory.