The culprit behind Bitcoin's sharp drop on Thursday: Massive IBIT-related leveraged options liquidated?

BlackRock’s Bitcoin Spot ETF set a new trading volume record on Thursday, with market participants suspecting that this sharp volatility may have been triggered by forced liquidations of high-leverage positions in the IBIT held by hedge funds.

According to Nasdaq data, BlackRock’s Bitcoin Spot ETF product IBIT traded over 284 million shares on Thursday, with a nominal value surpassing $10 billion, a 169% surge from the previous record. Meanwhile, the IBIT price plummeted 13% to around $36, hitting a new low since October 2024, with the year-to-date decline expanding to 27%.

The record-breaking trading volume was accompanied by large-scale redemptions and panic in the options market. According to SoSoValue data, IBIT redemption funds on that day reached $175 million, accounting for 40% of the total net outflow of $434 million across 11 Bitcoin ETFs. In the options market, put options’ implied volatility premium exceeded 25 points over call options, reaching a historic high.

According to BlockBeats, Parker White, Chief Investment Officer and Chief Operating Officer of DeFi Dev Corp, stated on social media that he suspects this volatility originated from one or more non-crypto hedge funds holding large IBIT positions. These funds may have attempted to reverse the situation through highly leveraged options trading, but losses continued to grow, ultimately being wiped out by Bitcoin’s decline.

Dual Extremes in Trading Volume and Price

The 284 million shares traded in IBIT on Thursday far exceeded the previous record of 169 million shares set on November 21. This trading volume was nearly double that previous figure. According to CoinDesk, this volume corresponds to a nominal value of over $10 billion.

In terms of price, IBIT briefly fell below $35, reaching the lowest level since October 11, 2024. The fund’s price peaked at $71.82 in early October last year and has been declining since. As the world’s largest publicly listed Bitcoin fund, IBIT holds physical Bitcoin, aiming to mirror the spot price of Bitcoin. On Thursday, Bitcoin briefly dropped close to $60,000.

The combination of record-breaking trading volume and price collapse is often seen as a sign of capitulation selling, indicating long-term holders are giving up and liquidating positions at a loss. This marks the most intense phase of the bear market sell-off, potentially signaling the start of a long and painful bottoming process.

Options market data further confirms panic sentiment. According to MarketChameleon, on Thursday, IBIT’s long-term put options’ implied volatility premium exceeded that of call options by over 25 points, reaching a historic high. Put options are contracts used by investors to hedge against downside risk.

White pointed out that the options premiums amounted to about $900 million, also a record high. However, according to CoinDesk, even with signs of capitulation, it does not guarantee that the market has bottomed, as the duration of the bear market could exceed the capacity of low-cost buyers to hold.

Hedge Fund Leverage Liquidation Speculation

White speculated on the root cause of this volatility. He said that since Bitcoin and stocks are declining simultaneously, and centralized finance platforms’ liquidation volumes are relatively low, he suspects the volatility stems from large IBIT holders, possibly one or more non-crypto hedge funds.

Data shows that some funds hold extremely high positions in IBIT, even if they are single-asset funds, aiming to isolate margin risks. Silver also experienced a sharp decline on Thursday, with yen carry trade unwinding accelerating, increasing market pressure and further impacting the leverage positions of these funds.

White believes these funds may have attempted to reverse the situation through highly leveraged options trading, but losses kept expanding, and the decline in Bitcoin could have completely wiped out their holdings. He pointed out that due to the delay in 13F filings, related position disclosures are only expected to be published in mid-May, but given the scale of the event, it will be difficult to hide for long.

IBIT, as a preferred investment vehicle for institutions seeking exposure to cryptocurrencies through regulated products, may reveal the pressures faced by institutional investors in the current market environment through its abnormal trading activity.

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