The "crushing" of prices is attributed to a combination of institutional unwinding, technical errors, and macroeconomic shifts:
1. Institutional Deleveraging: The "basis trade"—where hedge funds buy spot Bitcoin and short futures—became less profitable, falling from 17% annual returns to under 5% by early 2026. This triggered a massive exit by institutional investors, with hedge fund exposure to Bitcoin ETFs reportedly falling by one-third.
2. Bithumb Exchange Error: On February 6, 2026, the South Korean exchange Bithumb accidentally distributed 620,000 bitcoins (worth roughly $44 billion) as promotional rewards instead of small cash amounts. This error triggered a sharp flash sell-off on the exchange before trading was restricted and funds were largely recovered.
3. Forced Liquidations: A massive leverage purge saw over $2.28 billion in total crypto positions liquidated in a single 24-hour period. Over 270,000 traders were liquidated globally, with long positions accounting for the vast majority of losses.
4. Macroeconomic Pressures: A "risk-off" sentiment has hit global markets due to geopolitical tensions (involving the U.S., Iran, and Russia) and high interest rates. Additionally, a broad sell-off in AI-related tech stocks has dragged down crypto miners who had pivoted their operations to AI infrastructure.
5. China Crackdown: On February 6, 2026, China's central bank announced a renewed crackdown on virtual currencies and a ban on unauthorized offshore yuan-pegged stablecoins, further dampening market sentiment.
