The culprit behind Bitcoin's plunge on Thursday: massive IBIT-related leveraged options being liquidated?

BlackRock's Bitcoin spot ETF set a historical trading volume record on Thursday, with market participants suspecting that the intense volatility may stem from the forced liquidation of high-leverage positions held by hedge funds in IBIT.

According to Nasdaq data, BlackRock's Bitcoin spot ETF product IBIT saw a trading volume exceeding 284 million shares on Thursday, with a nominal value surpassing $10 billion, a staggering 169% increase from the previous record. Meanwhile, the price of IBIT plummeted 13% to around $36, marking a new low since October 2024, with a year-to-date decline of 27%.

The record trading volume was accompanied by large-scale redemptions and panic in the options market. According to SoSoValue data, the redemption amount for IBIT 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, the premium for put options exceeded that of call options by more than 25 volatility points, reaching a historical high.

According to BlockBeats, Parker White, Chief Investment Officer and Chief Operating Officer of DeFi Dev Corp, expressed on social media that he suspects this volatility originates from large IBIT positions held by one or more non-crypto hedge funds. These funds may have attempted to reverse the situation through high-leverage options trading, but their losses continued to expand, ultimately being wiped out by the decline in Bitcoin.

Dual Extremes in Trading Volume and Price

The trading volume of 284 million shares for IBIT on Thursday far exceeded the previous record. The fund's prior record, set on November 21, was 169 million shares, making this trading volume nearly double that amount. According to CoinDesk, this trading volume corresponds to a nominal value exceeding $10 billion.

In terms of price, IBIT briefly fell below $35, marking the lowest level since October 11, 2024. The fund's price had peaked at $71.82 in early October last year and has been in a continuous decline since then. As the world's largest publicly traded Bitcoin fund, IBIT holds physical Bitcoin and aims to mirror the spot price of Bitcoin. Bitcoin briefly dropped to nearly $60,000 on Thursday.

The combination of record trading volume and price plummet is typically seen as a signal of capitulation selling, where long-term holders concede defeat and liquidate their positions at a loss. This marks the entry of the bear market into the most intense selling phase, potentially signaling the beginning of a long and painful bottoming process.

Options market data further corroborates the panic sentiment. According to MarketChameleon data, on Thursday, the premium for long-term put options on IBIT exceeded that of call options by more than 25 volatility points, setting a historical high. Put options are contracts used by investors to hedge against downside risk Parker White pointed out that the options premium is about $900 million, also setting a historical high. However, according to CoinDesk, even if there are signs of capitulation, it does not guarantee that the market has bottomed out, as the duration of the bear market may exceed the financial capacity of dip buyers.

Hedge Fund Leverage Liquidation Speculation

Parker White speculated on the source of this volatility. He stated that Bitcoin and stocks are falling simultaneously, and the liquidation volume on centralized financial platforms is relatively low, leading him to suspect that the volatility originates from large IBIT holders, possibly one or more non-crypto hedge funds.

Data shows that some funds hold extremely high positions in IBIT, even single-asset funds, aiming to isolate margin risk. Silver also plummeted on Thursday, and the unwinding of yen carry trades intensified market pressure, further affecting the funds' leveraged positions.

Parker White believes that these funds may be attempting to reverse the situation through high-leverage options trading, but losses continue to expand, and ultimately, the decline in Bitcoin may completely wipe out their positions. He noted that due to delays in the disclosure of 13F reports, relevant position information is expected to be released only in mid-May, but the scale of the events makes it difficult to hide for long.

As the preferred investment tool for institutions seeking exposure to cryptocurrencies through regulated products, abnormal trading activities in IBIT may reveal the pressures faced by institutional investors in the current market environment