BitMEX Co-Founder Hayes Blames Bitcoin Sell-Off on ETF Hedging

Arthur Hayes, the co-founder of the cryptocurrency derivatives exchange BitMEX, has pointed to a specific, technical catalyst for the recent Bitcoin sell-off: hedging tied to BlackRock’s iShares Bitcoin Trust (IBIT). According to Hayes, banks and dealers who underwrite structured notes and ETF-linked products must hedge their exposure in the spot and derivatives markets. These hedges are not discretionary trades based on sentiment; they are large, fast, and mechanical adjustments required to manage risk.

When a major product like IBIT faces significant outflows or hits specific redemption triggers, the dealers behind it are forced to quickly unwind or adjust their hedge positions. This process can translate into sudden, concentrated selling pressure in the market. As Hayes noted on social media, “$BTC dump probably due to dealer hedging off the back of $IBIT structured products.” This selling can amplify an existing price decline, especially when market liquidity is thin, creating a cascade effect where the hedging action itself worsens the move it was meant to protect against.

The theory aligns with observable market behavior during the sell-off. Bitcoin’s price plunged steeply from recent highs before staging a partial recovery, with data from Coingecko showing it fell to around $68,500, representing a 16% decline over seven days. Trading activity showed telltale signs of the proposed mechanism. Order books and trade volumes spiked, indicating the kind of heavy, rapid rebalancing flows characteristic of institutional hedging activity.

Hayes described the market as behaving “like a room of people trying to leave at once,” a scenario consistent with multiple large players executing similar sell orders simultaneously. While other factors like macro news and trader positioning likely contributed, the overlap with hedging flows provides a compelling explanation for the velocity and severity of the drop. The episode demonstrates how risk carried by dealers for complex products can be passed back into the broader market, indirectly setting off a chain reaction that affects all holders and traders.

The event has placed the role of spot Bitcoin ETFs under a new spotlight. Reports indicate that the influence of these institutional vehicles on crypto market dynamics is now on the radar of regulators and policymakers in the United States, including President Donald Trump’s economic team. The core debate centers on whether these regulated products bring stability and legitimacy to the crypto market or, as this episode suggests, introduce new and potentially unpredictable stress points from traditional finance.

This incident underlines a critical development in cryptocurrency’s maturation: the creation of new financial plumbing that links traditional finance (TradFi) directly to crypto volatility. Structured products like those tied to IBIT form a clear conduit for this contagion. Some market participants view the presence of large, regulated players like BlackRock as a net positive for long-term adoption. Others warn that these same institutions bring conventional market mechanics that can behave in extreme ways when systems are stretched.

Hayes has stated his intention to compile a comprehensive list of bank-issued notes to better understand future trigger points. As the market structure evolves, so must the strategies of its participants. The recent volatility serves as a stark reminder that in the new intersection of crypto and traditional finance, price movements may increasingly be driven not by retail sentiment, but by the automated, risk-managing actions of large institutional intermediaries.