Original Title: "The 'Big Short' Burry: Bitcoin Has Already Plummeted 40%, and a Further 10% Drop Could Trigger 'Disastrous Consequences'"
Original Author: Zhao Ying, Wall Street Insight
Michael Burry, known as the "Big Short" for successfully predicting the collapse of the U.S. housing market in 2008, warns that Bitcoin has already plummeted 40%, and further declines could cause lasting damage to companies that have hoarded the asset over the past year. He believes Bitcoin has proven to be a purely speculative asset, failing to serve as a hedge like precious metals.
In a Substack article released on Monday, Burry pointed out that if Bitcoin drops another 10%, one of the most aggressive Bitcoin-holding companies, Strategy Inc., would face billions in losses and would be virtually shut out of the capital markets. He warned that a decline in Bitcoin could trigger "catastrophic consequences," including spillover into broader markets and leading to a "collateral death spiral" in tokenized metal futures.
As this warning was issued, Bitcoin continued to plummet on Tuesday, briefly falling below $73,000, erasing all gains since Trump's re-election in November 2024. Since hitting an all-time high in early October, the cryptocurrency has dropped over 40%.
Despite Burry's warning, the cryptocurrency market remains relatively small and is unlikely to trigger widespread contagion. Bitcoin's market cap is less than $1.5 trillion, with limited household holdings and a narrow range of corporate adoption, indicating that any wealth effect may remain contained.
Bitcoin Exposes Speculative Nature, Fails to Become Safe-Haven Asset
Burry noted in his article that Bitcoin has failed to respond to typical drivers such as a weak dollar or geopolitical risks, while gold and silver have reached all-time highs due to concerns over dollar depreciation stemming from global tensions. "Bitcoin has no organic use case to slow or stop its decline," Burry stated.
According to Bloomberg, analysts attribute Bitcoin's decline to multiple factors, including the disappearance of capital inflows, shrinking liquidity, and a broad loss of macro appeal. Many native cryptocurrency traders are also cooling on the token economy, shifting towards event betting with the rise of prediction markets.
Bitcoin fell to its lowest level since the turmoil triggered by last year's tariffs over the weekend and continued to decline on Tuesday. This performance sharply contrasts with the arguments of its long-term supporters, who believe Bitcoin's fixed supply allows it to be compared to gold.
Corporate Treasury Faces Huge Pressure
Burry warned that the adoption of Bitcoin by corporate finance departments and the launch of new cryptocurrency spot trading platform ETFs are insufficient to indefinitely support its price or prevent catastrophic consequences during significant declines. He pointed out that nearly 200 publicly traded 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. If Bitcoin prices continue to fall, risk managers will begin to advise their companies to sell.
Burry specifically mentioned that if Bitcoin drops another 10%, Strategy Inc., the most aggressive Bitcoin-holding company, would face billions in losses and find capital markets essentially closed to it. He described these "disgusting scenarios" as now within reach.
ETF Intensifies Speculation and Increases Market Correlation
Burry added that the emergence of spot ETFs has only intensified Bitcoin's speculative nature while also increasing the token's correlation with the stock market. He wrote that Bitcoin's correlation with the S&P 500 index has recently approached 0.50. Theoretically, when losing positions begin to grow, liquidations will actively trigger.
Burry noted that since late November, Bitcoin ETFs have been setting some of the largest single-day outflow records, with three occurring in the last ten days of January.
This trend indicates that institutional investors' confidence in Bitcoin is waning, and the ETF, which was originally seen as a tool to expand Bitcoin adoption, may instead accelerate sell-offs during market downturns.
Warning of "Collateral Death Spiral" Risk
As Bitcoin continues to fall below certain key levels, Burry believes it is spilling over into broader markets. He pointed out that the decline in cryptocurrencies is partly responsible for the recent crashes in gold and silver, as corporate finance executives and speculators need to reduce risk by selling profitable positions in tokenized gold and silver futures.
These tokenized metal futures are not backed by actual physical metals and could overwhelm physical metal trading, leading to a "collateral death spiral," he said.
"It appears that at the end of the month, due to the drop in cryptocurrency prices, 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 buyer-less black hole," he stated.
Nevertheless, some market observers noted that past crashes—from Terra to FTX—failed to infect traditional markets. Bulls now point to regulatory clarity and cheap valuations as potential fuel for another rebound. But Burry's warning highlights the systemic risks posed by Bitcoin as a corporate inventory asset.
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