Theories are swirling about what caused the market to crash. From a technical standpoint, it’s clear that the massive breakdown over the last few weeks was more than just a short-term reaction to macro volatility.
Sure, the first half of January saw significant capital inflows as major high-caps reclaimed key levels. In this context, it makes sense that the crash occurred as the crypto market swept liquidity and deleveraged.
However, analysts are now pointing to factors beyond just leveraged positions. Instead, Bitcoin’s [BTC] 35% drop might be tied to BlackRock’s IBIT ETF – Evidence that institutional moves amplified the downturn.
Source: X
Arthur Hayes, co-founder of BitMex, puts it simply – BTC sold off because banks were hedging positions tied to IBIT ETF. He cited Morgan Stanley’s “structured note” linked to IBIT, basically a bank-made bet on Bitcoin.
When BTC moved, these banks had to quickly sell to protect themselves. And, it wasn’t just Morgan Stanley. Other large non-crypto players have reportedly been doing similar trades too, adding fuel to the volatility.
The result? On 05 February, heavily leveraged IBIT ETF positions were forced to unwind. Trading that day hit record levels – $10.7 billion in volume and $900 million in options premiums, both all-time highs.
Fast forward to now, and IBIT Bitcoin ETF has recorded its first $200+ million inflow in nearly a month. It’s still early, but could this be a sign that BTC is stabilizing and that some investors are starting to step back in?
BlackRock sparks questions about Bitcoin’s recovery
Rarely are market moves purely “coincidental.”
Take the October crash – Bitcoin’s price dropped by 30%, driven in part by theories around Strategy’s potential exclusion from the MSCI index. That sparked full-blown panic, leading to widespread capitulation across risk assets.
Fast forward to now, and the crash is being viewed through a similar lens. In that context, the $200 million inflows into IBIT and Bitcoin’s Coinbase Premium Index (CPI) jumping 65% in under a week is anything but a fluke.
Source: CryptoQuant
Put simply, institutional investors may be stepping back in. A few days ago, the forced unwind triggered a major risk-off move. The CPI hit a monthly low, IBIT saw massive outflows, and Bitcoin broke below the $80k support level.
Now, the reversal in these metrics could allude to a potential bullish shift.
According to AMBCrypto, the market may be stabilizing, with institutions possibly setting the stage for a BTC bottom. In light of this, monitoring these indicators closely is key to seeing whether the crash is truly behind us or not.
Final Thoughts
- BlackRock’s IBIT ETF and other large players amplified volatility, with 05 February seeing record trading due to forced unwinds.
- Recent inflows into IBIT and a 65% jump in Bitcoin’s Coinbase Premium Index suggested institutions may be stepping back in.