That theory release on X said Parker White, a former equities trader who is now COO of a crypto firm called DeFi Development Corporation. In a long thread, White said there is evidence pointing to a sudden explosion of hedge funds in Hong Kong with call options on BlackRock’s IBIT, which is the world’s largest Bitcoin ETF.

White suggests that hedge funds use Yen carry trades (a form of interest arbitrage) to fund large positions in out-of-the-money IBIT options. It amounts to a risky bet that the price of Bitcoin, which has been falling since a big sell-off in October, recover. However, the expected rally did not come. On the other hand, White speculated that Hong Kong funds were also hit by the headwinds of the Yen-carry trade—which made their financing more expensive—and exposure to recent convulsions in the silver market.

The result is hedge funds facing a perfect storm and, as the crypto market fell sharply this week, the value of their assets decreased until they were liquidated — forcing massive sales of IBIT shares and a catastrophic fall in Bitcoin. Here’s how White explains what’s going on in trader-speak:

Now, I can easily see how the fund(s) run a leveraged options trade on IBIT (think of the way OTM calls = ultra high gamma) with borrowed capital in JPY. October 10 may well have broken their balance, which they tried to win by increasing leverage waiting for a “clear” rebound. As that led to further losses, coupled with increased funding costs in the JPY, I can see how the fund(s) would become more desperate and jump into the Silver trade. When that blew up, things got terrible and this last BTC push ended it.

In his post, White also pointed out that hedge funds in Hong Kong, whose Bitcoin trading takes place only in the form of ETF shares, are not part of the traditional crypto ecosystem. This means that the conversation about their predicament does not go out on “Crypto Twitter”—which is the go-to forum for industry news—and it also does not create counter-parties that have suffered huge losses, and are likely to warn others.

White’s theory is just that, of course: no more than a theory. Meanwhile, history shows that major Bitcoin crashes are usually triggered by multiple factors, not a single event. And indeed, this week’s crypto crackup coincided with a broader AI-related asset selloff, uncertainty over the fate of a key blockchain bill, as well as crypto names appearing in Epstein’s files—factors that all likely contributed to Thursday’s collapse.

However, White’s explanation is the most compelling, and is further supported by other circumstantial evidence, including a recent decision by the Securities and Exchange Commission to raise the limits of Bitcoin options trading.

Meanwhile, some long-time crypto figures have expressed cautious support for the Hong Kong hedge fund theory. Among them is the respected venture capitalist Haseeb Qureshi who CEBU the theory seems plausible, but added that it can take months to wait for regulatory filings that help confirm it, and that in some cases a key crypto player can “explode” without anyone knowing their identity. But for those who are confident that a hedge fund is the cause of this week’s market problems, there is a Polymarket. forum to bet the culprit.