Experts say it's mainly due to these factors
In the past month, everyone has likely noticed what has been happening in the crypto market. The price of Bitcoin has plummeted by over 40%, and just last Friday, it even reached a one-year low of $59,930. This is more than a 50% drop from its peak price of around $126,200 in October 2025. Experts have explained the sudden price drop with three main theories.
Let’s take a closer look!
1. Problems with Hong Kong-based Hedge Funds 💥
Experts suggest that the main "spark" for this price drop may have come from Asia.
Hedge funds based in Hong Kong borrowed Japanese yen (JPY) at low-interest rates. They then heavily wagered that Bitcoin prices would rise, using this borrowed money in options linked to Bitcoin ETFs like BlackRock's IBIT.
However, as Bitcoin prices failed to rise as expected and Japanese yen interest rates increased, these wagers became problematic. When lenders demanded repayment, hedge funds had to sell off their Bitcoin and other holdings, leading to further price declines. There were $10.7 billion in trades in just one day, and options premiums reached as high as $900 million, highlighting the seriousness of the issue.
2. "Negative Gamma" effects from major banks
The second point was highlighted by former BitMEX CEO Arthur Hayes.
Major banks like Morgan Stanley offer complex financial products known as "Structured Notes" linked to Bitcoin ETFs for their clients. These products involve betting on Bitcoin's price. When Bitcoin's price suddenly dropped below a certain level (for example, $78,700 for one of Morgan Stanley's products), banks had to sell Bitcoin (or related assets) to protect against losses. This is known as "Delta-Hedging." Such selling creates a situation known as "Negative Gamma." This means that as prices fall, banks are compelled to sell more to manage their risks, which in turn drives prices down even further.
3. Bitcoin miners turning towards AI
The third point is less obvious but still impactful on the market.
As AI technology advances, the demand for data centers has increased. As a result, Bitcoin miners have found that working for AI data centers is more profitable than mining Bitcoin. For instance, in December 2025, Bitcoin miner Riot Platforms announced it would shift from Bitcoin mining to data center operations, selling Bitcoin worth $161 million.
Recently, another miner, IREN, also announced a shift towards AI data centers. These changes have caused Bitcoin's hash rate to drop between 10% and 40%. The Hash Ribbons indicator shows that the 30-day hash rate average has fallen below the 60-day average, reflecting pressure on miners' revenue. As of last Saturday, the electricity cost to mine one Bitcoin was around $58,160, with the total cost around $72,700. If Bitcoin prices drop below $60,000, miners will face significant financial pressures.
Caution from long-term holders
Due to these conditions, long-term holders are becoming more cautious. Data indicates that wallets holding between 10 BTC and 10,000 BTC have seen their holdings decrease to the lowest level in nine months. This suggests they are selling based on current conditions rather than waiting for prices to recover.
These factors are the main reasons for the fluctuations in Bitcoin's price. The crypto market is always changing, influenced by financial movements, technological shifts, and the sentiment of investors, all of which can impact prices.
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