"On Friday, Bitcoin had clawed back most of those losses, and is now trading around $70,000, but the episode has left even longtime crypto insiders asking each other "What just happened?!" There are plenty of theories swirling around, but one is particularly compelling: The cause of the crash lies with Hong Kong traders who placed high-leverage Bitcoin bets that went horribly wrong."
"That theory was put forth on X by Parker White, a former equities trader who is now COO at a crypto firm called DeFi Development Corporation. In a long thread, White said there is evidence pointing to the sudden implosion of Hong Kong hedge funds that held call options in BlackRock's IBIT, which is the world's biggest Bitcoin ETF. White suggests that the hedge funds used the Yen carry trade (a form of interest arbitrage) to finance big positions in out-of-the-money IBIT options."
"This amounted to a risky bet that Bitcoin prices, which have been slumping since a big sell-off in October, would recover. The hoped-for rally didn't arrive, however. Meanwhile, White speculates that the Hong Kong funds also got pummeled by headwinds in the Yen-carry trade-which made their financing more expensive-and exposure to recent convulsions in the silver market. The upshot is the hedge funds"
Bitcoin plunged nearly $15,000 within 24 hours before recovering to roughly $70,000. Evidence points to the sudden implosion of Hong Kong hedge funds holding call options in BlackRock's IBIT ETF. Those funds reportedly financed large out-of-the-money IBIT call positions using the Yen carry trade, creating high leverage and interest-rate exposure. Continued Bitcoin weakness since October left the options deeply unprofitable. Adverse moves in the Yen-carry trade and exposure to silver-market convulsions raised funding costs and balance-sheet stress. Mass liquidations of fund positions forced heavy IBIT selling, which translated into a calamitous Bitcoin price drop prior to partial recovery.
Read at Fortune
Unable to calculate read time
Collection
[
|
...
]