← Coin Stories with Natalie Brunell
Coin Stories with Natalie Brunell
News Block: Bitcoin's Violent Selloff—What Triggered Crash and Is Bottom In? Epstein Files Mention Bitcoin 1,000 Times
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Welcome to the Coin Stories news block.
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Powered exclusively by LEDN.
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I'm Natalie Brunel and in about 10 minutes or less I'll provide you with insightful updates on bitcoin, financial markets and the global economy. Everything you need to know in one block.
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Let's go. Well, there's no sugarcoating it. We just saw one of the most brutal weeks for bitcoin in recent memory. Bitcoin crashed to around $60,000 this past week before. Before bouncing back up above 70,000. And if you were monitoring the price in real time, it was pretty intense. On Thursday alone, bitcoin fell almost 14% in a single day. To put that into perspective, moves of that magnitude have only happened a handful of times since 2010. Zooming out, Bitcoin is now down around 50% from its all time high set back in October of last year. That makes this the ninth time in Bitcoin's history that it's fallen 50% or more from its peak. It's painful, but it's not unprecedented. And it looks like the bear market is here. So what caused this? Because I know there are so many people who expected it to go far higher than 126,000, not to mention crashing this hard. There are plenty of theories floating around. Quantum fears, an exchange or market maker blowing up. Rising concerns about a more hawkish Federal Reserve. The truth is we probably won't know the full picture until the dust has settled. But one of the more compelling explanations that emerged this week has to do with leverage specifically, specifically tied to BlackRock's Bitcoin ETF. Ibit. Here's what we know. On the day of the crash, IBIT recorded its highest ever daily trading volume, about $10.7 billion worth. That's more than double its previous record. At the same time, options activity on IBIT surged to record levels with roughly $900 million in options premium traded in a single session. That's not normal activity. That's like an eruption of some sort. So what happened? According to a leading theory laid out by several analysts including Jeff park and Parker White, one or more large multi strategy hedge funds had built up significant leveraged exposure to Bitcoin through IBIT options. These are funds that run many strategies across asset classes and actively manage risk at the portfolio level. When volatility spiked and correlations across risk assets jumped, these positions came under pressure. Bitcoin didn't sell off in isolation. It got pulled into a broader multi asset deleveraging event. Reports citing Goldman Sachs prime brokerage data suggested that multi Strategy funds reached an unusually extreme level of positioning on February 4th. Something that based on their history, happens only about 0.05% of the time. In simple terms, hedge funds were packed into the same trades at crazy levels. And when things went wrong, they they all had to rush for the exit at once. So that helps explain why the deleveraging was so violent. For selling triggered a cascade. Other leveraged positions were wiped out. More than $2.5 billion in Bitcoin positions were liquidated across derivatives markets and the selling Fed on itself. But here's what's interesting. Despite all of that chaos, Jeff park revealed that IBIT actually saw net creations about 6 million new shares, or roughly $230 million in new assets. ETF flow Trackers also noted that the broader spot Bitcoin ETF complex saw net inflows during the whole episode. And that tells us something important. Real buyers were stepping in as those leveraged positions were being unwound. This was confirmed in the ETF flow data. Bloomberg ETF analyst Eric Balcunas shared that only about 6% of the assets in the Bitcoin ETFs have left. In other words, more than 90% of the capital in those ETFs didn't panic, they actually held. So the data suggests that long term investors largely weren't the ones selling. The for selling was concentrated in leveraged hedged and derivatives linked positions. What you might call the paper Bitcoin layer. And that brings us to a broader point that's really important to understand. A lot of people are asking how can an asset with a hard cap of 21 million crash this hard? The answer is that Bitcoin doesn't just trade on chain anymore. There's now an entire derivatives layer built on top of it for futures options, perpetual swaps, ETF shares, structured products. Economic exposure to a single Bitcoin can be replicated across multiple financial instruments at the same time. So when leveraged positions unwind, selling pressure can cascade through those layers very quickly. Even though the underlying monetary supply of Bitcoin hasn't changed at all. Some people look at that and say, well, Bitcoin's scarcity thesis is broken then, that Wall street has created infinite paper Bitcoin. I understand that frustration, but it misses the point. The derivatives layer amplifies price moves in both directions. It doesn't change Bitcoin's monetary policy. There are still only 21 million coins, and that's verifiable by anyone running a node. What these shakeouts actually do is flush out leverage Speculators get wiped out for sellers exit and ownership tends to shift toward investors with longer time horizons and stronger conviction. Historically, that's exactly what's needed to set up the next leg higher. So now the big question is was that the bottom or is there more downside ahead? Stay with us after this message. Need cash but don't want to sell your Bitcoin? LEDN is the global leader in bitcoin backed loans, issuing over $9 billion in loans since 2018 and they were the first to offer proof of reserves. With Leden, you get custody loans, no credit checks, no no monthly payments and more. Visit LEDN IO Natalie to learn more and get a quarter percentage point off your first loan. All right. In previous bear markets, bitcoin has often fallen 75 to 80% from its all time highs. If history were to repeat exactly that would imply downside risk into the $30,000 range. That's not impossible and some analysts are predicting that's exactly what we'll see in coming quarters. One of those analysts is Kevin Wadsworth from Northstar. Bad charts. Make sure to check out our episode tomorrow. Other analysts think that outcome is much less likely this time for a few important reasons. Bitcoin's market structure today is fundamentally different from what it was in 2018 or 2022. The investor base has matured. Bitcoin isn't just a retail driven trade anymore. It's sitting on corporate balance sheets, trading through regulated ETFs and increasingly held by institutional investors. Those dynamics don't eliminate volatility, but they can help soften the most disorderly moves. Some analysts also believe we may have already seen a meaningful washout. Charles Edwards shared data this week showing that the liquidation event we just experienced is only comparable to the FTX collapse and the Terra Luna crisis. Bitcoin is now sitting near one of its lowest RSI readings in history, a potential sign of seller exhaustion. Also, something called the Mayer Multiple, which compares price to the 200 day moving average, is near historic lows, suggesting Bitcoin is trading cheaply relative to its long term trend. At the same time, short positioning across futures, perpetuals and options markets is near record highs. Edwards takeaway was simple. Prices could still go lower, but across almost any metric this looks like a once in a cycle event. That said, not everyone believes the worst is behind us until another analyst I very much respect, Luke Groman, has warned that further downside is possible if broader market deleveraging continues. For now, he's staying cautious and says he's waiting for more Time to pass, or what he calls nuclear printing to start before stepping back in. So there are reasonable arguments on both sides. Stepping back for a moment, I want to leave you with some perspective. Bitcoin is a high volatility asset. I feel like investors don't really take that to heart when the price is going up as as much as when it's going down. Historically, its annualized volatility has hovered around 45%. That means moves of plus or minus 40 to 50% in a given year are not unusual. A 50% drawdown, while painful, doesn't mean something's broken. If this is your first major drawdown, my biggest piece of advice is this. Take a breath, slow your emotions down. Periods of peak fear are usually the worst time to make big reactive decisions. In my experience, bear markets are where the real work gets done when you deepen your understanding of what you own and can accumulate at levels that are the most impactful when the price recovers. That's one reason I wrote Bitcoin is for everyone to be a steady resource for people on a journey that will inevitably include volatility. And as I've said many times on this show, Bitcoin is a long term asset. You need a time horizon measured in years and even decades, not quarters and certainly not days or weeks. All right. Finally, let's turn to something that's been all over social media this past week. The newly released Epstein files that have generated a lot of headlines. And some of those headlines involve Bitcoin. A review of the documents shows well over a thousand references to Bitcoin. They indicate that Jeffrey Epstein invested roughly $3 million in Coinbase backed bitcoin infrastructure firm Blockstream, and through donations to the MIT Media Lab, indirectly supported Bitcoin core developers via the MIT Digital Currency initiative. That sparked a lot of commentary online. Bloomberg's Joe Wiesenthal summed up one concern this way. If Bitcoin positions itself as a solution for people shut out of the banking system, it's inevitably going to attract people you don't like. So let's address this head on because this is one of those stories where the headline sounds so alarming and I'm getting calls left and right about it. But once you understand how Bitcoin actually works, the conclusion is very different. Did Epstein try to gain influence over Bitcoin? It certainly appears that way. Did he succeed? No. And that's the entire point. As Safedina Moose put it, Epstein may have tried to influence bitcoin, but the entire point of Bitcoin is that he couldn't. No individual, no matter how powerful, can control the network. Even if a developer were compromised, any change to Bitcoin's code would still have to be voluntarily adopted by tens of thousands of independent nodes and miners around the world. You can't force a change onto the network. Bruce Fenton explained the funding trail clearly. Epstein donated to the MIT Media Lab, which supported the MIT Digital Currency initiative, which in turn funded Bitcoin developers. Those developers worked independently, just as they did with every other source of funding. And even if someone wanted to push malicious code, no miners would run it and no nodes would accept it. Remember, Bitcoin is open source software. Anyone around the world can verify it. And the fact that there are no backdoors. And here's the irony that really matters. Jeffrey Epstein didn't launder money with Bitcoin. He laundered money with US dollars through JP Morgan Chase accounts. Epstein was a JP Morgan client from 1998 through 2013, including after his 2006 arrest. The bank was later fined $290 million for enabling his activities. That's the traditional banking system facilitating crime, not Bitcoin. In the end, Bitcoin is just a tool, like the Internet or the dollar itself. Criminals use all of them, but the tools themselves are neutral. And unlike the traditional financial system, Bitcoin operates on a public, transparent ledger that, again, anyone can audit. The fact that Epstein tried and failed to influence Bitcoin isn't an indictment of Bitcoin. It's proof that the system works exactly as intended. That's it for the newsblock, your weekly.
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Bitcoin and economic news update.
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Powered exclusively by ledn.
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I'm Natalie Brunel.
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Make sure you're subscribed to Coinstory so.
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You never miss an episode. This show is for educational purposes and should not be construed as investment advice.