What caused the massive Bitcoin crash? Clues point to a blow-up at Hong Kong hedge funds | Fortune

That concept was put forth on X by Parker White, a former equities dealer who’s now COO at a crypto agency referred to as DeFi Improvement Company. In a lengthy thread, White stated there may be proof pointing to the sudden implosion of Hong Kong hedge funds that held name choices in BlackRock’s IBIT, which is the world’s largest Bitcoin ETF.

White means that the hedge funds used the Yen carry commerce (a type of curiosity arbitrage) to finance massive positions in out-of-the-money IBIT choices. This amounted to a dangerous guess that Bitcoin costs, which have been slumping since a massive sell-off in October, would get better. The hoped-for rally didn’t arrive, nevertheless. In the meantime, White speculates that the Hong Kong funds additionally received pummeled by headwinds in the Yen-carry commerce—which made their financing costlier—and publicity to current convulsions in the silver market.

The upshot is the hedge funds confronted a excellent storm and, as the crypto market slumped additional this week, the worth of their holdings declined till they received liquidated—forcing the mass sell-off of IBIT shares and a calamitous fall for Bitcoin. Right here is how White defined what occurred in trader-speak:

Now, I may simply see how the fund(s) may have been operating a levered choices commerce on IBIT (suppose method OTM calls = extremely excessive gamma) with borrowed capital in JPY. Oct tenth may very effectively have blown a gap of their steadiness sheet, that they tried to win again by including leverage ready for the “apparent” rebound. As that led to elevated losses, coupled with elevated funding prices in JPY, I may see how the fund(s) would have gotten extra determined and hopped on the Silver commerce. When that blew up, issues received dire and this final push in BTC completed them off.

In his submit, White additionally identified that the Hong Kong hedge funds, whose Bitcoin buying and selling occurred solely in the type of ETF shares, will not be a part of the conventional crypto ecosystem. Which means chatter about their predicament didn’t bubble up on “Crypto Twitter”—which is the go-to discussion board for business information—and nor did it create counter-parties who incurred massive losses, and can be doubtless to warn others.

White’s concept is simply that, in fact: not more than a concept. In the meantime, historical past reveals that main Bitcoin crashes have sometimes been touched off by a number of elements, not a single occasion. And certainly, this week’s crypto crackup coincided with a broader AI-related asset sell-off, uncertainty over the destiny of a key blockchain invoice, in addition to crypto names showing in the Epstein recordsdata—elements that each one doubtless contributed to Thursday’s meltdown.

Nonetheless, White’s rationalization is the most persuasive, and is additional supported by different circumstantial proof, together with a current choice by the Securities and Change Fee to elevate limits on buying and selling Bitcoin choices.

In the meantime, different longtime crypto figures expressed cautious assist for the Hong Kong hedge fund concept. That included the revered enterprise capitalist Haseeb Qureshi who described the concept as believable, however added that it could take months to look ahead to regulatory filings that would assist verify it, and that in some circumstances a key crypto participant can “blow up” with out anybody ever studying their identification. However for individuals who are assured that a hedge fund is at the root of this week’s market troubles, there may be already a Polymarket discussion board to guess on the offender.