Arthur Hayes, the co-founder of BitMEX, suggested that institutional dealer hedging is exacerbating the recent downward pressure on Bitcoin prices.
In a February 7 post on X, Hayes pointed to structured financial products linked to BlackRock’s iShares Bitcoin Trust (IBIT).
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Hayes Flags Hidden Risks in Bitcoin ETF Notes
He argued that falling Bitcoin prices force financial institutions that issue these notes to sell the underlying asset to manage their risk exposure. Finance professionals refer to this process as delta hedging.
Hayes explained that these structured notes are often issued by major banks to provide institutional clients with exposure to Bitcoin. The products include specific risk-management features, such as principal-protection levels.
When market prices dip low enough to trigger these pre-determined levels, dealers must aggressively adjust their positions to remain risk-neutral.
While this mechanism is standard in traditional equity markets, Hayes noted that it creates a feedback loop in the crypto sector where selling begets further selling. This dynamic effectively accelerates the asset’s price collapse.
“I will be compiling a complete list of all issued notes by the banks to better understand trigger points that could cause rapid price rises and falls,” Hayes wrote.
However, Hayes clarified that he does not believe there is a “secret plot” to crash the market.
He emphasized that these derivatives do not inherently instigate market movements but rather amplify volatility in both upward and downward directions.
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He added that the market should be grateful for the absence of bailouts, which would allow leverage to unwind naturally.
The commentary comes amidst a turbulent week for the cryptocurrency market. Bitcoin recently recorded its worst single-day performance since the collapse of the FTX exchange in November 2022.
Meanwhile, other market participants have attributed the decline to broader macroeconomic headwinds and even quantum computing security concerns.
For context, Pantera Capital General Partner Franklin Bi pinned the volatility on a distressed non-crypto entity rather than a typical industry fund.
Bi posited that the seller was likely a large, Asia-based player. This entity reportedly evaded early detection by market watchers because it lacks deep ties to crypto-native counterparties.
According to Bi’s theory, the entity was likely engaged in leveraged market-making strategies on Binance, funded by the Japanese yen carry trade.
These two analysis underscores a fundamental shift in the digital asset sector.
It shows that complex trading strategies, rather than retail sentiment alone, increasingly influence Bitcoin’s price action.
