Analyzing Bitcoin's 40% Price Plunge: Three Potential Causes

Bitcoin (BTC) has faced a steep decline, dropping over 40% in the past month to hit a year-to-date low of $59,930. This marks a significant decrease of more than 50% from its October 2025 peak of nearly $126,200.

Key Insights

• Potential causes include Hong Kong hedge funds and ETF-linked U.S. banking products.
• Bitcoin risks falling below $60,000, nearing miners' break-even points.

Hong Kong Hedge Funds' Role?

One theory suggests the crash originated from Hong Kong, where hedge funds made leveraged bets on BTC's rise, using Bitcoin ETFs like BlackRock's IBIT. They financed these bets with borrowed Japanese yen, swapping it for other currencies to invest in cryptocurrencies. However, when Bitcoin's price stagnated and yen borrowing costs rose, these leveraged positions deteriorated, leading to forced sales.

Morgan Stanley's Involvement: Arthur Hayes' Theory

Former BitMEX CEO Arthur Hayes proposes that banks like Morgan Stanley might have sold Bitcoin to hedge exposures in structured notes tied to Bitcoin ETFs. These complex financial instruments require banks to sell BTC when prices fall sharply, exacerbating the downturn.

Miners Transitioning to AI

Another theory is the so-called "mining exodus," where Bitcoin miners are shifting towards AI data centers due to rising demand. This transition has led to a notable drop in hash rate, contributing to the downtrend. For instance, Riot Platforms announced a strategic pivot while selling $161 million in BTC.

The Hash Ribbons indicator has also signaled a warning, with the 30-day hash rate average slipping below the 60-day, indicating potential miner capitulation. If Bitcoin's price drops below $60,000, miners could face severe financial stress.

Additionally, long-term holders appear cautious, with data showing a decline in the supply controlled by wallets holding 10 to 10,000 BTC, suggesting a reduction in exposure.

This article does not provide investment advice. Readers should conduct their own research before making investment decisions.