Bitcoin plunged more than 40% over the past month, hitting a year-to-date low of $59,930 on Friday and trading more than 50% below its October 2025 all-time high near $126,200. Analysts and market participants have floated several explanations for the sharp sell-off; three stand out as the most discussed drivers.
Key takeaways
– Market observers point to leveraged positions from Hong Kong hedge funds, ETF-linked structured products sold by banks, and miners reallocating capacity to AI as plausible catalysts.
– If BTC drops back below $60,000, it would approach miners’ estimated break-even levels and increase financial stress on producers.
1) Leveraged hedge funds in Hong Kong
One prominent theory traces the cascade back to Asia, where some Hong Kong hedge funds reportedly placed large, highly leveraged bets on continued Bitcoin gains. Those funds are said to have used options tied to spot Bitcoin ETFs — such as BlackRock’s IBIT — and funded positions by borrowing cheap Japanese yen, then converting yen into other currencies and risk assets including crypto.
When Bitcoin’s rally stalled and yen funding costs rose, the levered positions deteriorated. Margin calls and higher collateral requirements forced rapid liquidations, amplifying downward pressure on BTC. Market participants cite unusually high IBIT volume and single-day options premium activity alongside simultaneous drops across Bitcoin and other tokens as signs of concentrated, leveraged flows. Parker White, COO and CIO of Nasdaq-listed DeFi Development Corp. (DFDV), highlighted those indicators as evidence that leveraged positioning likely contributed to the move.
2) Banks hedging structured notes (negative gamma)
Another explanation, advanced by former BitMEX CEO Arthur Hayes and others, implicates banks that sold structured products linked to spot Bitcoin ETFs. Some structured notes offer clients payoffs with barriers or principal protection; when BTC breaches key price levels, the dealers who sold those notes must hedge their exposure by selling spot Bitcoin or futures.
That hedging can create “negative gamma”: as prices fall, hedging requires more selling, turning liquidity providers into forced sellers and deepening the decline. Observers have pointed to a Morgan Stanley product with a reference level near $78,700 as an example where dealer delta-hedging could have generated sizable sell-side pressure when those levels were tested.
3) Miners pivoting to AI and hash-rate impacts
A third theory centers on miners shifting capital toward AI data-center projects. Analysts tracking on-chain signals say some miners have repurposed capacity or sold holdings to finance data-center investments, producing a 10–40% drop in hash rate in some metrics. In December 2025, Riot Platforms announced a broader data-center strategy and disclosed a $161 million BTC sale; more recently miner IREN said it would pivot into AI infrastructure.
Hash-ribbon indicators flashed a warning as the 30-day hash-rate average dipped below the 60-day average, a negative inversion that historically signals miner revenue stress and raises capitulation risk. Estimates place the average electricity cost to mine one BTC near $58,160, with net production costs around $72,700. A sustained move back below $60,000 would put many miners under meaningful financial strain.
Investor positioning
On-chain investor behavior also shifted: wallets holding between 10 and 10,000 BTC now control their smallest share of supply in nine months, suggesting trimming by long-term holders rather than accumulation.
Caveat
This rewrite summarizes theories and market data reported by participants and analysts. It is not investment advice. All trading and investment decisions carry risk; readers should conduct their own research and consider professional guidance before acting. While efforts are made to ensure accuracy, neither this summary nor its sources can guarantee completeness or future outcomes.