Author: Nancy, PANews
The black swan-style crash has arrived, but we have yet to see where the black swan is, which is even more unsettling.
With almost no warning, Bitcoin suddenly plummeted, entering the third largest oversold zone in history, as the balances of bullish accounts and psychological defenses fell simultaneously. What confuses the market is that this spiral decline lacks a clear trigger.
While macro risks have sharply shifted, the reassessment of the Federal Reserve's hawkish expectations, tightening liquidity, and the chain reaction of leveraged liquidations explain the downward trend, some atypical speculations are also attempting to explain the strangeness of this market movement.
Speculation 1: A cross-market bloodbath triggered by Asian giants
Pantera Capital's general partner Franklin Bi speculated in a post that the recent large-scale sell-off in the crypto market was not driven by a crypto-focused trading company, but rather by a large entity from outside the sector in Asia. This entity has limited crypto trading counterparts, thus going unnoticed by the crypto community.
According to Franklin Bi's speculation, this entity engaged in leveraged trading and market making on Binance → closed yen arbitrage trades → faced an extreme liquidity crisis → received about 90 days of grace period → attempted to recover losses through gold/silver trading but failed → was forced to close positions this week.
In other words, this is a cross-market leverage mismatch "bloodbath" triggered by the spillover of traditional financial risks. In fact, yen arbitrage positions are one of the important sources of global liquidity. In the past, investors were accustomed to borrowing yen at zero cost, converting it into dollars, and investing in high-yield assets. However, as the yen enters a rate hike cycle accompanied by soaring government bond yields, this game has been disrupted, and Bitcoin, as one of the assets sensitive to global liquidity, often becomes the "preferred ATM" when arbitrage funds withdraw.
From this perspective, this speculation has a certain degree of reasonableness, as Bitcoin's decline was particularly severe and rapid during Asian trading hours.
Parker White, Chief Investment Officer of DeFi Dev Corp, also believes that this is a cross-market liquidity crunch.
White pointed out in a post that yesterday (February 5), the trading volume of BlackRock's IBIT reached $10.7 billion, nearly double the previous record, with an options premium of about $900 million, also setting a historical record. IBIT has become the largest venue for Bitcoin options trading, and combined with the simultaneous decline of BTC and SOL and the sluggish clearing volume in the CeFi market, there are suspicions that this volatility is due to a large IBIT holder facing forced liquidation.
He further analyzed that several funds based in Hong Kong allocated most or even 100% of their assets to IBIT, and this single-asset structure is usually designed to take advantage of isolated margin mechanisms. The involved funds may have used yen financing for high-leverage options speculation, and under the dual pressure of accelerated liquidation of yen arbitrage trades and a 20% drop in silver today, the institution attempted to recover previous losses by increasing leverage but ultimately collapsed due to a broken capital chain. Since such funds are mostly non-crypto-native institutions and lack trading counterparts on-chain, their risks had not been detected by the crypto community before, but he also revealed that the abnormal sharp decline in the net value of some related Hong Kong funds today has shown signs.
Combining White's analysis with past 13F disclosure data, it is noted that the family office Avenir Group, founded by Li Lin, is currently the largest holder of Bitcoin ETFs in Asia, holding 18.29 million shares of IBIT, with a very high concentration of positions, accounting for 87.6% of its investment portfolio; others like Yongrong (Hong Kong) Assets, Ovata Capital, Monolith Management, and Andar Capital Management also hold Bitcoin spot ETFs, but their holdings are relatively small.
Although the clues point clearly, White emphasized that we are still in the speculation stage. Due to the lag in 13F report disclosures, relevant holding information is expected to be available only by mid-May. He also warned that if brokerages fail to complete liquidations in a timely manner, the gaps that may appear on their balance sheets will be difficult to cover.
Speculation 2: The U.S./U.K. selling off seized Bitcoin
Rumors about multiple governments possibly selling seized Bitcoin have recently been brewing in the crypto community.
In the U.S., this January, U.S. military operations captured Venezuelan President Maduro. Due to Venezuela's long-standing economic crisis and international sanctions, there is speculation that the country secretly established a "shadow reserve" of up to 600,000 Bitcoins, leading to discussions about whether the U.S. has seized this portion of assets. However, there is currently a lack of any on-chain evidence supporting the claim of Venezuela's reserve Bitcoin. Another concern arises from the arrest of Chen Zhi, the founder of the Prince Group, last October, which led to the freezing and confiscation of about 127,000 Bitcoins (worth $15 billion at the time), marking the largest crypto asset seizure in U.S. history. Notably, U.S. Treasury Secretary Scott Bessent recently confirmed that the U.S. government will retain the Bitcoin obtained through asset forfeiture.
Meanwhile, movements in the U.K. across the Atlantic are also drawing attention. Last November, British police uncovered the largest Bitcoin money laundering case in U.K. history, with the main perpetrator Qian Zhiming arrested and 61,000 Bitcoins seized.
Although the Bitcoin held by the U.S. and U.K. constitutes a significant potential selling pressure expectation, there is currently no evidence of large transfers or OTC sales on-chain.
Speculation 3: "Deep-pocket" funds running dry, liquidity negative feedback
In the past, giant institutions (such as sovereign wealth funds, large pension funds, and major investment groups) that were seen as "deep-pocketed" are now facing funding pressures and are forced to sell assets to free up cash. The root of this change lies in the fact that the prosperity of the past decade has been built on low inflation, low interest rates, and high liquidity, and this macro environment has now reversed, with liquidity no longer abundant.
In a high-interest-rate environment, funding gaps are increasingly being resolved through asset liquidation. In recent years, a large amount of capital has been allocated to illiquid assets such as private equity, real estate, and infrastructure. According to an Invesco report, sovereign wealth funds' average allocation to illiquid alternative assets is expected to reach 23% by 2025. These assets are difficult to liquidate quickly, making liquidity management itself a strategic priority.
At the same time, a new wave of capital expenditure is accelerating. In particular, AI has evolved into a global, high-cost arms race, with investments characterized by strategic attributes and long-term commitments requiring continuous, stable, and large-scale cash support. It is reported that by 2025, sovereign wealth funds' investments in AI and digitalization-related fields will reach as high as $66 billion, which poses a substantial test for any institution's cash flow.
In this context, institutions often prioritize handling assets with unclear short-term prospects, high volatility, or those that are relatively easy to sell, such as underperforming tech stocks, crypto assets, and hedge fund shares. When more and more forced sellers appear in the market simultaneously, liquidity tightness evolves from an individual institution's problem into systemic pressure, ultimately forming a negative feedback loop that continues to suppress the overall performance of risk assets.
Speculation 4: Crypto OGs "fleeing"
Bitwise CEO Hunter Horsley believes that crypto natives and OGs are anxious due to the price drop and choose to sell, even though they have experienced similar moments countless times over the past decade. In contrast, institutional investors, wealth management managers, and investment professionals are quite pleased. They can finally re-enter at price levels they missed two years ago, or even at discounts 50% lower than four months ago.
Crypto KOL Ignas also stated that the reason crypto natives are selling now is that they anticipate a 1929-style crash. We are all watching Ray Dalio warn that the big cycle is about to end; we are all scrolling through posts about the AI bubble; we are fixated on similar unemployment data and the same "World War III" panic… The result is that while the S&P index did not plummet, the crypto market crashed first. We are essentially throwing trades at each other. Ultimately, we are just emotional traders, preemptively triggering each other's trades. This long-standing online state has indeed allowed us to be ahead of everyone else in areas like NFTs, MEME coins, and Vibe coding. But it also means that crypto natives are always trading in the same direction at the same time, FOMOing together and panic selling together. However, the baby boomer generation and institutional investors do not spend 14 hours a day scrolling through crypto Twitter; they just hold on.
Ignas also mentioned that there was an expectation that the involvement of ETFs would bring in holders with different time dimensions and types. But the reality is not so. The crypto market is still dominated by retail investors. We mistakenly think we are contrarian investors. But when every contrarian investor holds the same argument, that essentially becomes consensus. Perhaps the next cycle will be different.
In fact, Bitcoin OGs are seen as one of the important reasons for the sustained pressure on prices this round, especially with the activation of multiple Satoshi-era wallets last year, transferring tens of thousands of BTC. However, these token transfers are not entirely for selling pressure; they may be for address upgrades or custodial rotations, but objectively they still exacerbate market panic. According to recent analysis by Cryptoquant analyst DarkFrost, the selling pressure from OG holders has significantly decreased, and the current trend leans more towards holding.
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