No Black Swan Events, Four Unconventional Guesses About the Culprit Behind Bitcoin Overselling

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.

Almost without warning, Bitcoin suddenly plummeted, entering its third-largest oversold zone in history, causing both long positions to collapse and psychological defenses to crumble. What puzzled the market was the lack of a clear trigger for this spiraling decline.

While factors such as a sharp shift in macroeconomic risks, a reassessment of hawkish expectations from the Federal Reserve, tightening liquidity, and a chain reaction of leverage liquidation have explained the downward trend, some atypical speculations are also attempting to explain the strangeness of this market trend.

Speculation 1: A cross-market bloodbath triggered by an Asian giant

Franklin Bi, general partner at Pantera Capital, speculated that the recent massive sell-off in the crypto market was not orchestrated by a crypto trading firm, but rather by a large Asian entity outside the crypto sphere. This entity had limited crypto trading counterparties, thus remaining unnoticed by the crypto community.

According to Franklin Bi's speculation, the entity engaged in leveraged trading and market making on Binance → closed out its yen carry trade → faced an extreme liquidity crisis → obtained a grace period of approximately 90 days → failed to recover losses through gold/silver trading → was forced to close out its positions this week.

In other words, this was a cross-market leverage mismatch "bloodbath" triggered by the spillover of traditional financial risks. In reality, yen carry trade positions are a significant source of global liquidity. Investors were accustomed to this zero-cost arbitrage game of borrowing yen, converting it into dollars, and then investing in high-yield assets. However, as the yen entered a rate hike cycle and government bond yields soared, this game's rules were broken. Bitcoin, as one of the world's most liquidity-sensitive assets, often became the "preferred ATM" for arbitrage funds when they withdrew.

Therefore, this speculation has some merit, as Bitcoin's decline was particularly sharp and rapid during the Asian trading session.

Parker White, chief investment officer of DeFi Dev Corp, also believes this is a cross-market liquidity stampede.

White noted that BlackRock's IBIT trading volume reached $10.7 billion yesterday (February 5th), almost double the previous record, with options premiums of approximately $900 million, also a record high. IBIT has become the largest venue for Bitcoin options trading. Combined with the simultaneous decline of BTC and SOL and the sluggish liquidation volume in the CeFi market, it is suspected that this volatility is due to a large IBIT holder facing forced liquidation.

He further analyzed that many Hong Kong-based funds allocated most, or even 100%, of their assets to IBIT, a single-asset structure typically designed to utilize segregated margin mechanisms. The fund in question may have used yen financing for highly leveraged options trading. Faced with the dual pressures of accelerated liquidation of yen arbitrage positions and today's 20% plunge in silver prices, the institution attempted to recover previous losses by increasing leverage but failed, ultimately collapsing completely due to a broken funding chain. Because such funds are mostly non-crypto-native institutions and lack on-chain counterparties, their risks were previously unnoticed by the crypto community. However, he also revealed that the unusually sharp decline in the net asset value of some related Hong Kong funds today had already revealed signs of this.

Based on White's analysis and past 13F disclosures, Avenir Group, the family office founded by Li Lin, is currently the largest holder of Bitcoin ETFs in Asia, holding 18.29 million shares of IBIT, with a very high concentration of holdings, accounting for 87.6% of its portfolio. Other companies such as Yung Yung (Hong Kong) Asset Management, Ovata Capital, Monolith Management, and Andar Capital Management also hold Bitcoin spot ETFs, but their holdings are relatively small.

Despite the clear indications, White emphasized that this is still in the speculative stage. Due to the lag in 13F reporting, relevant holdings information is not expected to be available until mid-May. He also warned that if brokerages fail to complete liquidations in a timely manner, potential loopholes on their balance sheets will be difficult to conceal.

Speculation 2: The US/UK is dumping a huge amount of seized Bitcoin.

Rumors about multiple governments potentially selling off their seized Bitcoins have been circulating in the crypto community recently.

In January of this year, the US military operation resulted in the capture of Venezuelan President Maduro. Given Venezuela's long-standing economic crisis and international sanctions, there is speculation that the country secretly maintained a "shadow reserve" of up to 600,000 bitcoins, sparking debate about whether the US has seized these assets. However, there is currently no on-chain evidence to support the claim that Venezuela holds bitcoin reserves. Another concern stems from the arrest of Prince Group founder Chen Zhi in October of last year, which resulted in the freezing and seizure of approximately 127,000 bitcoins (worth $15 billion at the time), marking the largest cryptocurrency asset seizure in US history. Notably, US Treasury Secretary Scott Bessent recently publicly confirmed that the US government will retain bitcoins acquired through asset seizure.

Meanwhile, developments in the UK across the Atlantic are also attracting attention. Last November, British police cracked the largest Bitcoin money laundering case in British history, arresting the mastermind Qian Zhimin and seizing 61,000 Bitcoins.

Although the Bitcoins seized by the US and UK have created significant potential selling pressure, there is currently no evidence of large-scale transfers or OTC sales on the blockchain.

Speculation 3: "Deep pocket" funds dried up, leading to negative liquidity feedback.

Giant institutions that were once considered to have "deep pockets" (such as sovereign wealth funds, giant pension funds, and large investment groups) are now facing tight cash reserves and have to sell assets to free up cash. The root of this change is that the prosperity of the past decade or so was built on low inflation, low interest rates, and high liquidity, but this macroeconomic environment has reversed, and liquidity is no longer abundant.

In a high-interest-rate environment, funding gaps are increasingly being addressed through asset liquidation. Over the past few years, a significant amount of capital has been allocated to illiquid assets such as private equity, real estate, and infrastructure. According to an Invesco report, sovereign wealth funds are projected to allocate an average of 23% of their assets to illiquid alternative assets by 2025. The difficulty in quickly converting these assets into cash makes liquidity management a strategic priority.

At the same time, a new wave of capital expenditure is accelerating. In particular, AI has evolved into a global, extremely costly arms race, with investments characterized by strategic attributes and long-term commitments, requiring continuous, stable, and massive cash support. It is reported that in 2025 alone, sovereign wealth funds invested a staggering $66 billion in AI and digital-related fields, posing a substantial challenge to the cash flow of any institution.

In this context, institutions tend to prioritize assets with uncertain short-term prospects, high volatility, or relatively easy sales, such as underperforming tech stocks, crypto assets, and hedge fund shares. As more and more forced sellers appear in the market simultaneously, liquidity shortages evolve from individual institutional problems into systemic pressures, ultimately creating a negative feedback loop that continuously suppresses the overall performance of risky assets.

Speculation 4: The Encryption OG "Escapes"

Bitwise CEO Hunter Horsley believes that crypto natives and OGs are panicking and selling due to the price drop, even though they've experienced similar moments countless times over the past decade. Conversely, institutional investors, wealth managers, and investment professionals are overjoyed. They can finally re-enter the market at price levels they missed two years ago, or even at discounts of up to 50% compared to four months ago.

Crypto KOL Ignas also stated that crypto natives are selling now because they anticipate a 1929-style crash. We're all watching Ray Dalio warn of the impending end of a major cycle; we're all scrolling through posts about the AI ​​bubble; we're staring at similar unemployment data, the same "World War III" panic… The result? The S&P 500 didn't crash, but the crypto market collapsed first. We're essentially dumping our holdings on each other. Ultimately, we're just emotional traders, trading ahead of each other. This constant online activity has certainly given us an edge over everyone else in areas like NFTs, MEME coins, and Vibe coding. But it also means that crypto natives are always trading in the same direction at the same time—a collective FOMO, a collective panic sell-off. Baby boomers and institutional investors, however, don't spend 14 hours a day scrolling through crypto Twitter; they simply hold on.

Ignas also stated that he initially thought the introduction of ETFs would bring in holders with different time horizons and different types of positions. However, this hasn't been the case. The crypto market remains retail-driven. We consider ourselves contrarian investors. But when every contrarian investor holds the same argument, it's essentially consensus. Perhaps the next cycle will be different.

In fact, Bitcoin OG is considered one of the key reasons for the continued downward pressure on its price in this round, especially after the activation of multiple Satoshi-era wallets last year, resulting in the transfer of tens of thousands of BTC. However, these token transfers were not entirely due to selling pressure; they could have been for address upgrades or custodian rotations, but they still objectively exacerbated market panic. According to a recent analysis by Cryptoquant analyst Dark Frost, the selling pressure from OG holders has significantly decreased, and the current trend leans more towards holding.