Bitcoin’s (BTC) sharp sell-off on Feb. 5 was not driven by crypto-native stress or investor capitulation, but by forces more familiar to traditional finance.
According to Jeffrey Park, Chief Investment Officer at ProCap Financial, the episode marked another step in Bitcoin’s transition into a fully integrated risk asset within global capital markets.
Rather than responding to on-chain weakness or industry-specific failures, Bitcoin sold off alongside equities and other risk assets during one of the most volatile trading sessions for multi-strategy hedge funds in recent years.
That alignment, Park argues, is not incidental.
Cross-Asset Deleveraging Reached Bitcoin Through ETFs
Park points to record trading and options activity in BlackRock’s iShares Bitcoin Trust as evidence that ETFs were a primary transmission channel.
IBIT saw its highest trading volume to date, while options activity was dominated by put contracts, suggesting defensive positioning rather than speculative selling.
Despite Bitcoin falling more than 13 percent, ETF flows did not show the scale of redemptions seen in past drawdowns.
Instead, net creations were recorded across the ETF complex, a result Park attributes to market makers and dealers managing hedged positions rather than investors exiting outright.
Derivatives And Hedging Mechanics Drove The Downside
According to Park, much of the selling pressure came from the unwinding of delta-neutral strategies such as basis trades and relative-value positions that link Bitcoin ETFs with futures and equities.
As volatility spiked and correlations tightened, risk managers at multi-asset funds were forced to de-gross positions indiscriminately.
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That process was amplified by derivatives dynamics.
Short gamma exposure among dealers required additional selling as prices fell, while structured products with knock-in features may have accelerated hedging flows into weakness.
These mechanics created a feedback loop that pushed prices lower without corresponding asset outflows.
Why The Rebound Was Just As Fast
Bitcoin’s rebound on Feb. 6 was equally telling.
As volatility stabilized, hedged positions began to re-enter the market, while buyers stepped in to absorb inventory created during the sell-off.
Open interest on regulated futures venues recovered more quickly than on offshore exchanges, reinforcing Park’s view that traditional finance activity dominated the move.
A Preview Of Bitcoin’s Future Market Structure
Park argues the episode offers a glimpse into Bitcoin’s future.
As ETFs, options, and multi-asset portfolios continue to incorporate Bitcoin, its price action will increasingly reflect margin rules, hedging requirements, and risk controls rather than purely crypto-specific narratives.
That integration may make drawdowns sharper and more mechanical, but it also sets the stage for more violent upside squeezes when positioning flips.
In Park’s view, Bitcoin’s growing entanglement with traditional finance is not a weakness, but a structural shift that will define its volatility profile in the years ahead.
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