What happened to Bitcoin? 3 theories behind BTC’s 40% price drop in a month

Bitcoin (BTC) experienced its biggest sell-off last month, sliding more than 40% to a year-to-date low of $59,930 on Friday. It is now down more than 50% from its October 2025 all-time high near $126,200.

Main Receptors:

Analysts are pointing to Hong Kong hedge funds and ETF-linked Bank of America products as drivers of the BTC crash.

Bitcoin could slip below $60,000, bringing its price closer to miners' breakeven levels.

Hong Kong Hedge Funds Behind BTC Dump?

A popular theory suggests that this past week's Bitcoin crash may have originated in Asia, where some Hong Kong hedge funds are placing significant and valuable bets that BTC will continue to rise.

These funds used options linked to Bitcoin ETFs like BlackRock's IBIT and paid for those bets by borrowing from the cheap Japanese yen, said Parker White, COO and CIO of Nasdaq-listed DeFi Development Corp. (DFDV).

They convert that yen into other currencies and invest in riskier assets like crypto, hoping it will rise in value.

This was the highest volume day on $IBIT, ever, by nearly 2x, trading at $10.7B today. Additionally, nearly $900M in options premium was traded today, also the highest ever for IBIT. These facts and the way $BTC and $SOL traded today in lockstep (typically…

— Parker (@TheOtherParker_) February 6, 2026

When bitcoin stopped flowing, and yen borrowing costs rose, those leveraged bets quickly turned sour. Lenders then demanded more money, forcing the fund to sell bitcoin and other assets quickly, exacerbating the price drop.

Morgan Stanley caused the Bitcoin selloff: Arthur Hayes

Another theory comes from former BitMEX CEO Arthur Hayes.

He suggested that banks, including Morgan Stanley, may have been forced to sell Bitcoin (or related assets) to hedge their exposure to structured notes designed to hedge bitcoin ETFs like BlackRock IBIT.

These are complex financial products that banks offer to clients based on Bitcoin's price performance (often with principal protection or hedging).

When Bitcoin falls sharply by breaching key levels such as $78,700 in one well-known Morgan Stanley product, traders must delta-hedge by selling the underlying BTC or futures.

This creates “negative gamma,” meaning that as prices fall further, they block the sale, turning banks from liquid suppliers to forced sellers and exacerbating the collapse.

Miners are moving from Bitcoin to AI.

Less prominent but circulating is the theory that the so-called “mining exodus” has exacerbated Bitcoin's collapse.

In a Saturday post on X, analyst Judge Gibson, the growing demand for AI data centers is already forcing Bitcoin miners to pivot, which has reduced the hash rate by 10-40%.

For example, in December 2025, Bitcoin miner Riot Platforms sold $161 million worth of BTC and announced a switch to an extensive data center strategy. Last week, another miner, IREN, reported the image to AI data centers.

Related: Crypto's stress test hits balance sheets as Bitcoin, Ether collapse.

Meanwhile, the Hash Ribbons indicator also issued a warning: the 30-day hash-rate average dropped below the 60-day, a negative reversal that indicates historically high mining revenue stress and increases the risk of a pullback.

As of Saturday, the estimated average electricity cost per bitcoin miner was about $58,160, and the net production cost was about $72,700.

If Bitcoin falls below $60,000, miners could feel real financial stress.

Long-term owners are also looking more cautious.

The data shows that wallets holding between 10 and 10,000 BTC now control their smallest share of supply in nine months, this group is reducing exposure rather than accumulating.