BitMEX co-founder Arthur Hayes suggested that institutional dealer hedging is exacerbating recent downward pressure on Bitcoin prices.
In a Feb. 7 post about X, Hayes pointed to a structured financial product linked to BlackRock’s iShares Bitcoin Trust (IBIT).
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Hayes points out hidden risks in Bitcoin ETF notes
He argued that the fall in Bitcoin prices will force the financial institutions that issue these notes to sell the underlying assets to manage their risk exposure. Financial experts refer to this process as delta hedging.
Hayes explained that these structured notes are often issued by large banks to provide institutional clients with exposure to Bitcoin. These products include specific risk management features such as levels of principal protection.
If market prices fall enough to trigger these preset levels, dealers must actively adjust their positions to remain risk neutral.
While this mechanism is standard in traditional stock markets, Hayes pointed out that in the cryptocurrency sector, selling creates a feedback loop that generates more selling. This dynamic effectively accelerates the asset’s price collapse.
“We intend to compile a complete list of all notes issued by banks to better understand the trigger points that can cause sharp rises and falls in prices,” Hayes wrote.
But Hayes made it clear that he did not believe there was a “secret conspiracy” to collapse the market.
He emphasized that these derivatives do not inherently induce market movements, but rather amplify volatility in both the upward and downward directions.
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He added that markets should be grateful that leverage will loosen on its own in the absence of a bailout.
The comments come amid a tumultuous week for the cryptocurrency market. Bitcoin recently recorded its worst one-day performance since the collapse of the FTX exchange in November 2022.
Meanwhile, other market participants attributed the decline to broader macroeconomic headwinds and even quantum computing security concerns.
For context, Franklin Bee, general partner at Pantera Capital, blamed the volatility on failed non-cryptocurrency entities rather than typical industry funds.
Bi speculated that the seller was likely to be a large company based in Asia. The company reportedly evaded early detection by market watchers due to its lack of deep ties to crypto-native counterparties.
According to Bi’s theory, this company was likely engaged in a market-making strategy on Binance that utilized funds from Japanese yen carry trades.
These two analyzes highlight fundamental changes in the digital asset sector.
This shows that complex trading strategies, not just retail sentiment, are increasingly influencing Bitcoin price trends.
