"The Big Short" Burry: Already down 40%, if Bitcoin falls another 10%, it will trigger "catastrophic consequences"

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Michael Burry, famed for successfully predicting the 2008 U.S. housing market crash and known as "The Big Short," has warned that Bitcoin has already plunged 40% and further declines could inflict lasting damage on companies that have accumulated large amounts of the asset over the past year. He believes Bitcoin has proven to be purely speculative and has failed to become a hedge like precious metals.

In a Substack article published Monday, Burry noted that if Bitcoin falls another 10%, one of the most aggressive Bitcoin holding companies, Strategy Inc., will see billions of dollars in losses and will be effectively shut out of capital markets. He warned that a Bitcoin decline could trigger "catastrophic outcomes," including spillover into broader markets and lead to a "collateral death spiral" in tokenized metal futures.

This warning comes as Bitcoin continued to plunge on Tuesday, at one point dropping below $73,000 and erasing all gains since Trump's reelection in November 2024. Since its all-time high in early October, the cryptocurrency has fallen by more than 40%.

Despite Burry's warning, the crypto market remains relatively small and is unlikely to trigger widespread contagion. Bitcoin’s market capitalization is below $1.5 trillion, household holdings are limited, and corporate adoption is narrow—indicating that any wealth effect may remain contained.

Bitcoin Exposed as Speculative, Fails as Safe Haven Asset

Burry pointed out in his article that Bitcoin has failed to respond to typical drivers such as a weakening dollar or geopolitical risks, while gold and silver have hit all-time highs on concerns about dollar depreciation spurred by global tensions. "Bitcoin has no organic use case to slow or halt its decline," Burry said.

According to Bloomberg, analysts attribute Bitcoin’s decline to multiple factors, including vanishing capital inflows, shrinking liquidity, and a broad loss of macro appeal. Many native crypto traders are also cooling on token economics and shifting toward event-driven bets as prediction markets rise.

Bitcoin dropped over the weekend to its lowest level since last year’s tariff-driven turmoil and continued its slide on Tuesday. This performance is in stark contrast to long-term backers who claim that Bitcoin’s fixed supply makes it comparable to gold.

Treasury Companies Face Major Pressure

Burry warned that Bitcoin’s adoption by corporate treasuries and the launch of new crypto spot ETFs are not enough to indefinitely support prices or prevent catastrophic consequences if it plunges. He pointed out that nearly 200 listed companies hold Bitcoin.

While this helps expand demand, "inventory assets are not permanent," he wrote. Inventory assets must be marked to market and included in financial reports. Should Bitcoin prices keep falling, risk managers will begin advising their companies to sell.

Burry specifically noted that if Bitcoin drops another 10%, Strategy Inc.—the most aggressive Bitcoin inventory company—will suffer billions of dollars in losses and find capital markets effectively closed to it. He described these "repugnant scenarios as now within reach."

ETFs Fuel Speculation and Heighten Market Correlation

Burry added that the emergence of spot ETFs has only intensified Bitcoin’s speculative nature while also increasing the token’s correlation to the stock market. He wrote that Bitcoin's correlation with the S&P 500 index recently approached 0.50. In theory, as losing positions grow, liquidations will actively be triggered.

Burry noted that since late November, Bitcoin ETFs have repeatedly set some of their largest single-day outflow records, with three taking place in the last 10 days of January.

This trend indicates weakening institutional confidence in Bitcoin, and ETFs—originally seen as a way to expand adoption—could actually accelerate selling in a market downturn.

Warning of "Collateral Death Spiral" Risk

As Bitcoin continues to break key levels, Burry believes it is spilling over into wider markets. He noted that the crypto decline is partly to blame for the recent gold and silver plunge, as corporate treasurers and speculators have had to reduce risk by selling profitable positions in tokenized gold and silver futures.

These tokenized metal futures are not backed by actual physical metal and could overwhelm the physical metals market, leading to a ‘collateral death spiral,’ he said.

"It appears that by the end of the month, as crypto prices fell, up to $1 billion in precious metals were liquidated," Burry wrote. If Bitcoin falls to $50,000, miners will go bankrupt and “tokenized metal futures will collapse into a black hole with no buyers,” he said.

Nevertheless, some market observers point out that past collapses—from Terra to FTX—have failed to infect traditional markets. Bulls now cite regulatory clarity and cheap valuations as possible drivers for another rebound. But Burry’s warning highlights the systemic risk Bitcoin poses as a corporate inventory asset.

Risk Warning and DisclaimerThe market involves risks, and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their particular circumstances. Investing based on this article is at your own risk. ```