Author: Nancy, PANews
A black swan-style crash has arrived, but we haven't seen where the black swan is, which is even more unsettling.
Without any warning signs, Bitcoin suddenly plummeted, entering the third-largest oversold zone in history, with bullish account balances and psychological defenses simultaneously breaking down. What confuses the market is that this spiral decline cannot be traced to a clear trigger.
While macro risks, the Fed's hawkish expectations re-evaluation, liquidity tightening, and chain reaction liquidations from leverage also explain the downward trend, some atypical speculations are attempting to interpret the strange market behavior this time.
Speculation 1: Cross-market bloodshed triggered by Asian giants
Pantera Capital General Partner Franklin Bi posted a hypothesis that the behind-the-scenes driver of recent large-scale crypto sell-offs is not a crypto-focused trading firm, but a large Asian entity outside the circle. This entity has limited crypto trading counterparties, so it hasn't been noticed by the crypto community.
According to Franklin Bi, this entity engaged in leverage trading and market making on Binance → closing JPY arbitrage positions → extreme liquidity crisis → approximately 90-day grace period → failed attempts to recover through gold/silver trading → forced liquidation this week.
In other words, this is a cross-market leverage mismatch "bloodshed" caused by traditional financial risk spillover. In fact, JPY arbitrage positions are a significant source of global liquidity. Investors have historically relied on zero-cost borrowing of yen, converting to USD to chase high-yield assets in arbitrage games. But as the yen enters a rate hike cycle and Japanese government bond yields soar, this game is broken, and Bitcoin, being one of the most liquidity-sensitive assets globally, often becomes the "first withdrawal machine" when arbitrage funds retreat.
This hypothesis seems plausible, as Bitcoin's decline this time was particularly intense and rapid during Asian trading hours.
DeFi Dev Corp Chief Investment Officer Parker White also believes, this is a cross-market liquidity stampede.
White posted that yesterday (February 5), BlackRock's IBIT trading volume reached $10.7 billion, nearly double the previous record, with options premiums around $900 million, also a record. IBIT has become the largest venue for Bitcoin options trading. Coupled with the simultaneous decline of BTC and SOL and subdued CeFi market liquidations, he suspects the volatility was caused by a major IBIT holder facing forced liquidation.
He further analyzed that many funds based in Hong Kong have most or even 100% of their assets in IBIT, a single-asset structure usually designed to utilize isolated margin mechanisms. The involved funds may have used yen financing for high leverage options trading. Under the dual pressure of accelerated yen arbitrage position liquidations and silver plunging 20% today, these institutions tried to leverage up to recover previous losses but failed, ultimately collapsing due to a liquidity crunch.
Since such funds are often non-native crypto institutions with no on-chain counterparties, their risks had not been noticed by the crypto community before, but he also revealed that some related Hong Kong funds' net asset values have shown abnormal and sharp declines today.
Combining White's analysis with past 13F disclosures, the family office Avenir Group founded by Li Lin is currently Asia's largest Bitcoin ETF holder, with 18.29 million IBIT shares, highly concentrated, accounting for 87.6% of its portfolio. Other holdings like Yongrong (Hong Kong) Assets, Ovata Capital, Monolith Management, and Andar Capital Management also hold Bitcoin spot ETFs, but in smaller scales.
Although the clues point clearly, White emphasizes that this is still in the speculation stage. Due to the lag in 13F filings, relevant holdings information is expected to be available only by mid-May. He also warns that if brokerages fail to complete liquidations in time, potential gaps on their balance sheets will be hard to conceal.
Speculation 2: US/UK seizure and sale of large amounts of Bitcoin
Recent rumors about multiple governments potentially selling seized Bitcoin have been fermenting within the crypto community.
In the US, in January this year, the US military arrested 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 Bitcoin, prompting discussions about whether the US has seized these assets. However, there is currently no on-chain evidence supporting Venezuela's Bitcoin reserves.
Another concern stems from last October, when Prince Group founder Chen Zhi was arrested by the US, and approximately 127,000 Bitcoin (worth about $15 billion at the time) were frozen and confiscated — the largest crypto asset seizure in US history. Notably, US Treasury Secretary Scott Bessent recently confirmed that the US government will retain the Bitcoin obtained through asset confiscation.
Meanwhile, across the Atlantic, the UK’s actions also attract attention. In November last year, UK police uncovered the largest Bitcoin money laundering case in UK history, arresting Qian Zhiming and seizing 61,000 Bitcoin.
Although the seized Bitcoin by the US and UK represents a huge potential selling pressure, there is currently no on-chain evidence of large transfers or OTC sales.
Speculation 3: "Deep-pocket" funds exhausted, liquidity feedback loop
Large institutions once considered "deep pockets" (such as sovereign wealth funds, giant pension funds, large investment groups, etc.) are now facing capital shortages and are forced to sell assets to free up cash.
This shift stems from the fact that the past decade's prosperity was built on low inflation, low interest rates, and high liquidity, but this macro environment has reversed, and liquidity is no longer abundant.
In a high-interest-rate environment, funding gaps are increasingly being resolved through asset liquidation. Over the past few years, large amounts of capital have been allocated to private equity, real estate, infrastructure, and other illiquid assets. According to Invesco, by 2025, the average allocation of sovereign wealth funds to illiquid alternative assets will reach 23%. These assets are difficult to liquidate quickly, making liquidity management a strategic priority.
Meanwhile, a new wave of capital expenditure is accelerating. Especially as AI has evolved into a costly global arms race, requiring ongoing, stable, and large-scale cash support with strategic and long-term commitments. It is reported that in 2025 alone, sovereign wealth funds will invest up to $66 billion in AI and digitalization-related fields, posing a real test for any institution's cash flow.
In this context, institutions tend to prioritize assets with uncertain short-term prospects, high volatility, or easier to sell, such as underperforming tech stocks, crypto assets, and hedge fund shares. As more forced sellers flood the market, liquidity tension shifts from individual institutions to systemic pressure, ultimately creating a negative feedback loop that continues to suppress the overall performance of risk assets.
Speculation 4: Crypto OGs "flee"
Bitwise CEO Hunter Horsley believes that crypto natives and OGs are anxious due to falling prices and are choosing to sell, even though they have experienced similar moments countless times over the past decade. Conversely, institutional investors, wealth managers, and investment professionals are quite happy. They finally get to re-enter at prices missed two years ago, or even at 50% discount compared to four months ago.
Crypto KOL Ignas also states that crypto natives are selling now because they expect a 1929-style crash. We are all watching Ray Dalio warn that the long cycle is ending; we see posts about the AI bubble; we observe similar unemployment data and panic about a "Third World War"... The result is that the S&P 500 hasn't crashed, but the crypto market has already collapsed. Essentially, we are throwing FOMO and panic selling at each other.
This long-standing online state has indeed allowed us to be earlier than others in NFT, MEME coins, Vibe coding, and similar areas. But it also means that crypto natives tend to trade in the same direction at the same time — FOMO together, panic sell together. Baby boomers and institutional investors don’t spend 14 hours a day scrolling crypto Twitter; they just hold steady.
Ignas also mentions that he initially thought ETF involvement would bring different types of holders with different time horizons. But the reality is otherwise. The crypto market is still dominated by retail investors. We think of ourselves as contrarian investors, but when every contrarian holds the same argument, it becomes consensus. Maybe the next cycle will be different.
In fact, one of the main reasons Bitcoin OGs are seen as a key factor in the ongoing price pressure is the activation of multiple Satoshi-era wallets last year, transferring tens of thousands of BTC. However, these transfers are not necessarily all sell-offs; some may be address upgrades or custody rotations, but objectively, they still fuel market panic. According to recent analysis by Cryptoquant analyst DarkFrost, selling pressure from OG holders has significantly decreased, and the current trend leans more toward holding.
