Bitcoin didn’t just drop on February 5. Something broke. And most of the crypto market was looking in the wrong place.
Parker White, Chief Investment Officer at DeFi Development Corp, shared a detailed breakdown on the Unchained podcast with Laura Shin. His theory has since gone viral.
According to White, a hedge fund blowup inside BlackRock’s IBIT options market is what has been dragging Bitcoin down since October.
February 5 Was Not a Normal Bitcoin Sell-Off
On February 5, Bitcoin dropped from around $70K to $63K. That same day, BlackRock’s IBIT ETF recorded its highest trading volume ever.
But here’s the thing. Spot Bitcoin volumes and perpetual swap volumes were not unusually high. The stress was entirely in IBIT options, where short-dated implied volatility spiked sharply. White said this pointed to an options market blowup, not a broad spot sell-off.
A Hong Kong Fund Got Trapped
White’s theory centers on a non-crypto Hong Kong hedge fund that had been shorting Bitcoin volatility through IBIT options. When implied volatility spiked on October 10, the fund took heavy losses but chose to double down instead of cutting the position.
A large investor redemption request, bound by Hong Kong’s 90-day settlement rule, likely forced a full liquidation by early February.
“After talking to multiple folks, I’m much more convinced now that a Hong Kong-based fund who is a large holder of IBIT blew up,” White had previously said.
Someone Ran a ‘Big Short’ Against Bitcoin
While the vol sellers were getting crushed, White believes another fund was quietly buying cheap puts starting around July when volatility was near historic lows.
The playbook was simple. Push Bitcoin’s price down during thin weekend liquidity. When markets opened Monday, IBIT dealers had to hedge their overnight exposure by selling, which amplified the drop further.
“Make no mistake. There was actually a new billionaire crypto trader mentioned this week,” White noted.
What Comes Next
13F filings are due May 15. If one or more of the concentrated Hong Kong-based IBIT holders no longer holds its position, White considers that the smoking gun.
Until then, the theory remains unconfirmed but the breadcrumbs are hard to ignore.
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FAQs
Options dealers hedge their exposure dynamically, meaning they may buy or sell Bitcoin as prices move. When volatility jumps quickly, hedging flows can accelerate price swings beyond what normal spot demand would justify. This feedback loop can magnify short-term market stress.
Many macro and volatility-focused funds trade ETF options without directly holding crypto. For them, Bitcoin exposure can be a volatility strategy rather than a directional bet. If risk models misjudge volatility, losses can spread beyond crypto-native firms.
Short-term instability in options markets may raise concerns about liquidity and risk management. However, institutional investors typically assess ETF structure, counterparty risk, and clearing safeguards before reallocating capital. Market transparency in upcoming filings could influence sentiment.
Market makers, leveraged traders, and funds running short-volatility strategies would likely face the greatest risk. Retail investors may experience sharper price swings but are less directly exposed to options-specific mechanics. Exchanges and ETF issuers may also face scrutiny over liquidity conditions.
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