What Crashed Bitcoin? Three Key Theories Behind BTC’s Drop Below $60K

Bitcoin has experienced one of its steepest declines of the current cycle, falling more than 40% over the past month and briefly touching a year-to-date low near $59,930.

The leading cryptocurrency is now down over 50% from its October 2025 all-time high near $126,200, raising questions about what triggered the sudden reversal in market sentiment.

Analysts point to a combination of leveraged positioning, institutional hedging activity, and structural pressure from miners as potential catalysts behind the move.

Theory 1: Leveraged Hedge Funds in Hong Kong

One widely discussed theory suggests that the selloff may have originated in Asia, particularly among Hong Kong-based hedge funds that placed heavily leveraged bets on continued bitcoin upside.

According to market observers, some funds used cheap Japanese yen funding to finance options positions linked to spot Bitcoin ETFs such as BlackRock’s IBIT. The strategy involved borrowing yen, converting it into other currencies, and deploying capital into risk assets like crypto.

When bitcoin’s upward momentum stalled and borrowing costs rose, these leveraged trades quickly turned unprofitable. Margin calls forced funds to unwind positions, triggering rapid selling across crypto markets.

Record trading activity in IBIT supports this theory, with the ETF posting its highest-ever volume and options activity during the same period as bitcoin’s sharp decline.

Theory 2: ETF-Linked Bank Hedging and “Negative Gamma”

Another explanation comes from derivatives market dynamics tied to structured financial products.

Former BitMEX CEO Arthur Hayes suggested that banks offering structured notes linked to Bitcoin ETFs may have been forced to hedge exposure as BTC fell through key levels.

These products often include barriers or protection features. When prices drop below certain thresholds, banks must sell bitcoin or futures contracts to remain hedged. This process creates what traders call negative gamma, where falling prices force additional selling.

As BTC broke through key levels, dealer hedging may have amplified the downturn, turning liquidity providers into forced sellers and accelerating volatility.

Theory 3: Mining Pressure and AI Pivot

A third theory focuses on structural changes within the mining industry.

Growing demand for AI data centers has prompted some bitcoin miners to reallocate resources toward high-performance computing infrastructure. This shift has coincided with reports of declining hash rate and increased bitcoin sales by mining firms.

Several miners have recently announced strategic pivots toward AI-related data centers while selling portions of their BTC holdings to fund expansion.

On-chain indicators also point to rising miner stress. The Hash Ribbons metric, which tracks miner activity, recently flashed a warning signal historically associated with periods of capitulation.

Estimates suggest that the average cost to mine one bitcoin is now close to $58,000 in electricity costs, with total production costs significantly higher. If BTC remains near or below $60,000, some miners could face profitability pressure.

Market Structure and Investor Behavior

The selloff has also coincided with shifts in long-term holder behavior. Data shows that wallets holding between 10 and 10,000 BTC now control their smallest share of supply in months, suggesting some larger holders have reduced exposure rather than accumulated.

This combination of deleveraging, institutional hedging, and structural selling has created a challenging environment for bitcoin in the short term.

Outlook: Volatility Likely to Persist

While no single factor fully explains bitcoin’s decline, the convergence of these three forces offers a clearer picture:

leveraged hedge fund positions unwinding

ETF-linked institutional hedging

miner selling and cost pressures

If bitcoin fails to hold the $60,000 support zone, analysts warn that price could drift closer to miners’ break-even levels, potentially increasing selling pressure.

However, periods of extreme volatility and deep corrections have historically been part of bitcoin’s market cycles. Many investors are now watching whether the current drawdown represents a short-term liquidity event or the start of a broader market reset.

FAQ

Why did bitcoin crash below $60K?

A mix of leveraged hedge fund unwinds, institutional hedging tied to ETF products, and miner pressure likely contributed to the drop.

How much has bitcoin fallen?

Bitcoin is down more than 40% over the past month and over 50% from its all-time high.

Could bitcoin fall further?

If support near $60,000 breaks, analysts say price could test levels closer to mining production costs.