Who Crashed Bitcoin on Feb 6? Hedge Funds or Morgan Stanley?

Bitcoin collapsed on February 6, triggering intense debate across the crypto market about what caused the sudden selloff. While volatility is nothing new for digital assets, this drop stood out because of the growing role of institutional players.

Three major theories have emerged: leveraged hedge funds caught in a yen funding squeeze, banks forced to hedge structured Bitcoin products, and miners shifting capital toward artificial intelligence infrastructure. Rather than competing explanations, these forces may be interconnected.

Hedge Funds, Structured Notes, and Forced Selling

One leading theory centers on Hong Kong-based hedge funds that made leveraged bets on Bitcoin’s rise. According to Parker White, Chief Operating Officer and Chief Investment Officer at DeFi Development Corp, some funds used options tied to Bitcoin ETFs such as BlackRock’s IBIT while financing positions with low-cost Japanese yen borrowing.

The strategy was straightforward. Funds borrowed yen, converted it into other currencies, and deployed capital into higher-risk assets like Bitcoin. As long as Bitcoin climbed and borrowing costs remained low, the trade worked.

But when Bitcoin stalled and the yen strengthened, the dynamic reversed. Rising funding costs and falling crypto prices turned leverage into a liability. Margin calls followed, forcing rapid liquidation of Bitcoin positions and amplifying downside pressure.

The Structured Product Effect

Former BitMEX CEO Arthur Hayes suggested another possible trigger: bank hedging activity tied to structured notes linked to spot Bitcoin ETFs.

These products allow clients to gain Bitcoin exposure with features such as principal protection or downside barriers. When Bitcoin breaks key price levels, such as $78,700 in one structured product tied to Morgan Stanley, dealers must delta-hedge by selling Bitcoin or futures.

This creates a “negative gamma” effect. As price falls, more hedging is required, accelerating the decline. In this scenario, banks shift from liquidity providers to forced sellers, intensifying volatility.

Miners Shift Toward AI as Hashrate Signals Flash

A third theory links Bitcoin’s weakness to growing structural stress among miners.

On February 7, analyst Judge Gibson wrote on X that increasing demand for AI-focused data centers is pushing some miners to reconsider their business models. The shift may already be contributing to a 10%-40% drop in hashrate in certain segments.

In December 2025, Riot Platforms announced a broader data center strategy and sold $161 million worth of Bitcoin. Another miner, IREN, also revealed plans to expand into AI infrastructure.

Meanwhile, the Hash Ribbons indicator flashed a warning. The 30-day average hashrate fell below the 60-day average, a negative inversion historically associated with miner stress and potential capitulation.

As of February 7, the average electricity cost to mine one Bitcoin stood near $58,160, while total production costs were closer to $72,700. If Bitcoin trades below $60,000 for an extended period, profitability pressure could intensify, potentially forcing additional selling.

A Systemic Chain Reaction

From a systems-level perspective, these developments may not be isolated.

Algorithmic trading systems can transmit localized shocks globally within seconds. Hedge fund liquidations can increase volatility, triggering structured product hedging. Falling prices then pressure miners, who may sell reserves or pivot capital elsewhere. Each step compounds the next.

The May 2010 Flash Crash demonstrated how automated systems can turn contained stress into rapid market-wide dislocation. Today’s institutional Bitcoin market operates under similar algorithmic frameworks.

Unlike the 2017-2021 cycle, which was largely retail-driven, the current market structure is heavily influenced by bank trading desks, derivatives exposure, and risk-managed strategies. The professionalization of Bitcoin has increased liquidity and access, but it has also introduced new systemic vulnerabilities.

If historical patterns tied to long-term holder realized price repeat, some analysts suggest a potential 15% downside scenario toward the $34,500 zone. Whether that level is tested or not, the February 6 selloff highlights a critical reality: Bitcoin’s volatility is no longer just emotional, it is increasingly structural.