Bitwise Advisor Attributes Crypto Selloff to Multi-Asset Portfolio Deleveraging
Summary:
Bitwise advisor Jeff Park analyzed the February 5 crypto market crash, attributing it to multi-asset portfolio deleveraging rather than crypto-specific factors. The selloff was driven by unwinding CME basis trades, short gamma positions, and structured product hedging. Despite Bitcoin’s 13.2% drop, spot Bitcoin ETFs saw $230 million in net inflows. The event was triggered by software equity selloffs affecting multi-strategy funds like Millennium and Citadel.
What This Means for You:
- Monitor cross-market correlations – Crypto volatility now heavily influenced by traditional finance (TradFi) hedge fund activity
- Watch CME basis spreads – Sharp increases signal potential deleveraging events (basis jumped from 3.3% to 9% during crash)
- Assess structured product risks – Knock-in barriers at $38K-$43K accelerated selling pressure
- Expect continued volatility – Short gamma positions and ETF flows create complex market dynamics
Original Post:
Bitwise advisor Jeff Park attributed the February 5 crypto selloff to multi-asset portfolio deleveraging rather than crypto-specific factors.
- February 5 selling was driven by multi-asset fund deleveraging, not crypto-native fear
- CME basis trades unwound violently as pod shops de-grossed across portfolios
- Short gamma and structured product hedging amplified downside despite ETF inflows
IBIT recorded $10 billion in trading volume, doubling its previous high, while options activity hit historic levels led by put contracts rather than calls.
The crash saw Bitcoin (BTC) fall 13.2% yet IBIT posted $230 million in net creations with 6 million new shares, bringing total ETF inflows above $300 million.
CME basis trade unwinding drove violent deleveraging
Park identified the CME basis trade as a primary driver of selling pressure. The near-dated basis jumped from 3.3% on February 5 to 9% on February 6, one of the largest moves observed since ETF launch.
Multi-strategy funds like Millennium and Citadel hold large positions in the Bitcoin ETF complex and were forced to unwind basis trades by selling spot while buying futures.
Structured products created crypto bloodbath
Structured products with knock-in barrier features contributed to selling acceleration. A JPMorgan note priced in November carried a barrier at $43,600.
Options were sold too cheaply relative to outsized moves that eventually materialized, worsening the downside. Dealers held short gamma on puts from the $64,000-$71,000 range.
Extra Information:
CME Bitcoin Futures – Understanding basis trading mechanics
Goldman Prime Brokerage – Multi-strategy fund risk management
JPMorgan Research – Structured product market analysis
People Also Ask About:
- What is a CME basis trade? – Arbitrage strategy between Bitcoin futures and spot prices
- How do ETF flows affect Bitcoin price? – Creates institutional buying/selling pressure
- What is short gamma positioning? – Market makers amplifying moves through hedging
- Why did software stocks affect crypto? – Multi-strategy funds hold correlated assets
- Are Bitcoin ETFs stabilizing the market? – Currently increasing volatility through complex flows
Expert Opinion:
“This event demonstrates crypto’s maturation into TradFi markets – we’re now seeing contagion work in reverse where traditional portfolio rebalancing drives crypto volatility. Investors must now monitor cross-asset correlations and prime brokerage flows alongside on-chain metrics,” says Michael Anderson, co-founder of Framework Ventures.
Key Terms:
- CME Bitcoin basis trade arbitrage strategy
- Multi-strategy hedge fund deleveraging crypto impact
- Short gamma positioning in Bitcoin options markets
- Structured products with knock-in barriers crypto
- Bitcoin ETF flows vs spot market dynamics
- Pod shop risk management crypto selloffs
- Cross-asset correlation trading crypto equities
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