Uncovering the Real Cause Behind the Market Crash
Jeff Park, Bitwise advisor, recently provided in-depth analysis on the recent crypto market crash, attributing the drop to risk unwinding in traditional financial systems and derivative mechanisms rather than fundamental changes in the crypto industry or a single black swan event.
Clarifying Misconceptions About ETF Position Limits
Park addressed the misinformation circulating about Nasdaq lifting position limits on ETF options. He emphasized that IBIT and BITB have always been subject to a standard cap of 250,000 shares. The SEC’s recent updates merely aligned the position limits of spot ETFs like FBTC and ARKB with those of IBIT and BITB to ensure fair market practices.
ETF Cap Increase Request Denied
Notably, IBIT had previously requested an increase in its position limit from 250,000 to 1 million shares in November last year. However, this request has not been approved, highlighting regulators' cautious approach to such changes.
Market Sell-off Driven by Non-directional Trading
Park pointed out that the crash coincided with record trading volumes and a surge in options activity, particularly in the bearish segment. Despite a double-digit drop in Bitcoin prices over two days, the expected massive outflows from ETFs did not occur. Instead, ETFs recorded net inflows.
Key Indicator to Watch: ETF Fund Flows
This suggests that the selling pressure primarily originated from paper money movements and non-directional trading related to hedging and market making, rather than a withdrawal of long-term capital. Park concludes that monitoring ETF inflows and outflows in the coming days will be crucial in determining whether new long-term demand is emerging.