Hong Kong hedge funds’ leveraged BTC price bets are emerging as the main trigger behind Bitcoin’s sharp month-long sell-off. Bitcoin (BTC) experienced one of the biggest sell-offs over the past month, sliding more than 40% to reach a year-to-date low of $59,930 on Friday. It is now down over 50% from its October 2025 all-time high near $126,200.

Analysts are pointing to Hong Kong hedge funds and ETF-linked U.S. bank products as possible drivers of BTC’s crash. Bitcoin could slip back below $60,000, putting the price closer to miners’ break-even levels. One popular theory suggests that Bitcoin’s crash this past week may have originated in Asia, where some Hong Kong hedge funds were placing substantial, leveraged bets that BTC would continue to rise.

These funds used options linked to Bitcoin ETFs like BlackRock’s IBIT and paid for those bets by borrowing cheap Japanese yen. They swapped that yen into other currencies and invested in risky assets like crypto, hoping prices would rise. Notably, the trading volume on $IBIT was exceptionally high, with $10.7 billion traded on what was the highest volume day ever for the product.

However, when Bitcoin stopped going up and yen borrowing costs increased, those leveraged bets quickly went south. Lenders demanded more cash, forcing the funds to sell Bitcoin and other assets rapidly, which exacerbated the price drop.

Another theory gaining traction comes from former BitMEX CEO Arthur Hayes. He suggested that banks, including Morgan Stanley, may have been forced to sell Bitcoin or related assets to hedge their exposure in structured notes tied to spot Bitcoin ETFs like BlackRock's IBIT. These complex financial products allow banks to offer clients bets on Bitcoin's price performance, often with principal protection or barriers.

When Bitcoin fell sharply, breaching key levels around $78,700 in one noted Morgan Stanley product, dealers had to delta-hedge by selling underlying BTC or futures. This created a “negative gamma” situation, meaning that as prices dropped further, hedging sales accelerated, turning banks from liquidity providers into forced sellers. This dynamic exacerbated the downturn.

A less prominent but circulating theory suggests a so-called “mining exodus” may have also fueled the Bitcoin downtrend. Analyst Judge Gibson noted that the growing demand for AI data centers is forcing Bitcoin miners to pivot, leading to a 10-40% drop in hash rate. For instance, Bitcoin miner Riot Platforms announced its shift toward a broader data center strategy while selling $161 million worth of BTC.

In addition, another miner, IREN, recently announced its pivot to AI data centers. The Hash Ribbons indicator also flashed a warning: the 30-day hash-rate average has slipped below the 60-day, a negative inversion that historically signals acute miner income stress and raises the risk of capitulation.

As of now, the estimated average electricity cost to mine a single Bitcoin is around $58,160, while the net production expenditure is approximately $72,700. If Bitcoin drops back below $60,000, miners could start to experience real financial stress. Long-term holders are also looking more cautious, as data shows wallets holding 10 to 10,000 BTC now control their smallest share of supply in nine months. This suggests this group has been trimming exposure rather than accumulating.

The current market dynamics pose significant challenges for Bitcoin and its community. As prices fluctuate and institutional involvement shifts, the landscape continues to evolve, leaving investors with more questions than answers. The intertwining of leveraged bets, institutional hedging, and mining dynamics paints a complex picture of Bitcoin's current status.

While the market may recover, the underlying factors driving this sell-off serve as critical reminders of the inherent risks in cryptocurrency investments. As always, investors should tread carefully and conduct thorough research before making any decisions in this volatile environment.