What caused Bitcoin to crash? 3 theories behind BTC price falling 40% in one month

Bitcoin (BTC) experienced its biggest drop in the past month, dropping more than 40% to a year-to-date low of $59,930 on Friday. The stock is currently down more than 50% from its all-time high of around $126,200 in October 2025.

Important points:

• Analysts say U.S. banking products linked to Hong Kong hedge funds and ETFs could be the cause of Bitcoin’s collapse.

• Bitcoin could fall below $60,000, pushing the price closer to the break-even point for miners.

Is a Hong Kong hedge fund behind the BTC dumping?

One popular theory suggests that last week’s Bitcoin crash may have originated in Asia, and that some Hong Kong hedge funds may have made large leveraged bets that Bitcoin would continue to rise.

Parker White, COO and CIO of Nasdaq-listed DeFi Development Corp. (DFDV), said these funds used options linked to Bitcoin ETFs such as BlackRock’s IBIT and borrowed cheap Japanese yen to pay for their bets.

They exchanged the yen for other currencies and invested in risky assets such as cryptocurrencies in hopes of rising prices.

This day was the day with the highest trading volume. $IBITwhich has nearly doubled to date at $10.7 billion. Additionally, approximately $900 million in option premiums were traded today, also a record amount for IBIT. Considering these facts and methods, $BTC and $SOL Today we traded in lockstep (usually…)

— Parker (@TheOtherParker_) February 6, 2026

Once Bitcoin stopped rising and the cost of borrowing yen rose, leveraged bets quickly became untenable. Lenders then demanded more cash, forcing funds to quickly sell Bitcoin and other assets, further exacerbating the price decline.

Morgan Stanley caused the Bitcoin crash: Arthur Hayes

Another theory gaining traction comes from Arthur Hayes, former CEO of BitMEX.

He suggested that banks including Morgan Stanley may have been forced to sell bitcoin (or related assets) to hedge their exposure to structured notes tied to spot bitcoin ETFs, such as BlackRock’s IBIT.

These are complex financial products in which banks offer their customers bets on Bitcoin’s price performance (often with principal protection or barriers in place).

When Bitcoin plummets and breaks through a key level, such as around $78,700 in one famous Morgan Stanley product, dealers have to sell the underlying Bitcoin or futures to create a delta hedge.

This creates a “negative gamma,” meaning that as prices fall further, hedge sales accelerate, turning banks from liquidity providers into forced sellers, further exacerbating the economic downturn.

Miners move from Bitcoin to AI

A less obvious theory is that a so-called “mining drain” may have also accelerated Bitcoin’s downward trend.

Analyst Judge Gibson said in a post on X on Saturday that increased demand for AI data centers has already forced Bitcoin miners to pivot, leading to a 10-40% drop in hashrate.

For example, in December 2025, Bitcoin miner Riot Platforms announced a shift to a broader data center strategy while selling $161 million worth of BTC. Last week, another miner, IREN, announced its transformation into an AI data center.

Related: Cryptocurrency stress test hits balance sheets as Bitcoin and Ether collapse

Meanwhile, the hash ribbon indicator also issued a warning. The 30-day hash rate average was below 60 days. This is a negative reversal and historically indicates severe income stress for miners, increasing the risk of capitulation.

As of Saturday, the estimated average electricity cost to mine one Bitcoin was about $58,160, with a net production expenditure of about $72,700.

If Bitcoin falls below $60,000, miners could begin to experience severe financial stress.

Long-term holders are also becoming cautious.

According to the data, wallets holding 10-10,000 BTC currently control the smallest share of supply in nine months, suggesting this group is reducing exposure rather than accumulating.