Arthur Hayes, co-founder of BitMEX, attributed Bitcoin’s sharp decline in early February 2026 to mechanical delta-hedging activity tied to structured products based on BlackRock’s iShares Bitcoin Trust (IBIT).
According to Hayes, as Bitcoin’s price fell through key trigger levels, banks and dealers connected to these products were forced to sell large quantities of the underlying asset to remain hedged. This process, driven by automated institutional risk systems, created what Hayes described as a “vicious cycle” of forced selling, accelerating downside pressure.
Negative Gamma and Institutional Selling Pressure
Hayes pointed to the role of major banks, including Morgan Stanley, which issue structured derivatives linked to Bitcoin ETFs. These products require dealers to actively hedge exposure as prices move.
When Bitcoin breached specific levels embedded in such structures—Hayes cited $78,700 as one trigger in a Morgan Stanley product—dealers were compelled to sell Bitcoin or Bitcoin futures. This phenomenon, known as negative gamma, forces selling into falling prices, amplifying volatility rather than dampening it.
As these hedging thresholds were crossed, selling pressure became mechanical rather than discretionary, intensifying the speed and depth of the decline.
Liquidity Drain as a Secondary Macro Factor
Beyond derivatives-related selling, Hayes identified a broader liquidity squeeze as an additional driver. He referenced an estimated $300 billion reduction in U.S. dollar liquidity, exacerbated by actions from the U.S. Treasury.
In late 2025 and early 2026, the Treasury increased its Treasury General Account (TGA) balance by roughly $200 billion, effectively pulling cash out of the financial system. Hayes argued that this reduced liquidity available for risk assets, including Bitcoin, at a moment when markets were already fragile.
Structural Shock, Not a Structural Bear Market
Despite a brief flash crash that sent Bitcoin as low as $60,000, Hayes characterized the episode as driven by external structural forces, not by a deterioration in Bitcoin’s long-term fundamentals.
In his view, the decline reflects the interaction between ETF-linked derivatives, dealer hedging requirements, and temporary liquidity withdrawal, rather than the onset of a sustained bear market.
Bullish Outlook for the Rest of 2026
Looking ahead, Hayes remains strongly bullish on Bitcoin through the remainder of 2026. He forecasts that Bitcoin could reach $500,000 to $750,000 by year-end, driven primarily by global fiat monetary debasement and what he expects to be a drastic increase in dollar liquidity.
He anticipates that the Federal Reserve will eventually pivot toward monetary expansion, potentially through Reserve Management Purchases (RMP), to stabilize the banking system and foreign exchange markets, particularly the Japanese yen. Hayes believes such policies would materially benefit risk assets, including Bitcoin.
Strategic Focus Beyond Bitcoin
For 2026, Hayes highlighted privacy as a key investment narrative. He specifically identified Zcash (ZEC) and Ethena (ENA) as projects aligned with this theme, suggesting that capital rotation within crypto markets may increasingly favor assets positioned around privacy and monetary resilience.
Key Takeaway
Hayes’ analysis frames Bitcoin’s early-February decline as a mechanical, liquidity-driven event, rooted in ETF-linked derivatives and macro cash dynamics rather than a breakdown in long-term market structure. While volatility may persist in the near term, he views the episode as a setup phase for significantly higher prices later in 2026.
