"Big Short" Burry: Already down 40%, if Bitcoin drops another 10%, it will trigger "disastrous consequences"

Made famous for successfully predicting the 2008 US housing market crash, “The Big Short” Michael Burry warns that Bitcoin has already plunged 40%, and further declines could cause lasting damage to companies that have accumulated large holdings of the asset over the past year. He believes Bitcoin has proven to be purely a speculative asset and has failed to serve as a hedge like precious metals.

In a Substack article published on Monday, Burry pointed out that if Bitcoin drops another 10%, one of the most aggressive Bitcoin inventory companies, Strategy Inc., could face billions of dollars in losses and would essentially be unable to access capital markets. He warned that a decline in Bitcoin could trigger “catastrophic consequences,” including spreading to broader markets and causing a “collateral death spiral” in tokenized metal futures.

As this warning was issued, Bitcoin continued to tumble on Tuesday, briefly falling below $73,000, erasing all gains since Trump’s re-election in November 2024. Since hitting a record high in early October, this cryptocurrency has declined over 40%.

Despite Burry’s warning, the market size of cryptocurrencies remains relatively small and unlikely to cause widespread contagion. Bitcoin’s market cap is less than $1.5 trillion, with limited household holdings and narrow corporate adoption, indicating any wealth effects may stay within manageable bounds.

Bitcoin’s Exposure as a Speculative Asset, Failing to Become a Safe Haven

Burry noted in the article that Bitcoin has failed to respond to typical drivers such as dollar weakness or geopolitical risks, while gold and silver have hit all-time highs amid concerns over dollar devaluation driven by global tensions. “There’s no organic use case for Bitcoin to slow or halt its decline,” Burry said.

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 crypto traders are also cooling on tokenomics as the rise of prediction markets shifts focus toward event betting.

Bitcoin fell to its lowest level since last year’s tariff-induced turmoil over the weekend and continued to decline on Tuesday. This performance sharply contrasts with the long-standing argument of its advocates, who believe Bitcoin’s fixed supply makes it comparable to gold.

Treasury Companies Under Heavy Pressure

Burry warned that corporate treasury holdings of Bitcoin and the launch of new cryptocurrency spot exchange-traded funds (ETFs) are insufficient to support its price indefinitely or prevent catastrophic outcomes during sharp declines. He pointed out that nearly 200 publicly listed companies hold Bitcoin.

While this helps expand demand, “inventory assets are not permanent,” he wrote. Inventory assets must be valued at market price and included in financial reports. If Bitcoin prices continue to fall, risk managers will begin advising their companies to sell.

Burry specifically mentioned that if Bitcoin drops another 10%, Strategy Inc., the most aggressive Bitcoin inventory company, will face billions of dollars in losses and find the capital markets essentially closed to it. He described these “disgusting scenarios” as now within reach.

ETFs Amplify Speculation and Increase Market Correlation

Burry added that the emergence of spot ETFs has only intensified Bitcoin’s speculative nature and increased its correlation with the stock market. He noted that Bitcoin’s correlation with the S&P 500 recently approached 0.50. In theory, as losing positions grow, liquidations will actively accelerate.

Burry pointed out that since late November, Bitcoin ETFs have experienced some of the largest single-day outflows, with three such instances occurring in the last 10 days of January.

This trend indicates that institutional confidence in Bitcoin is waning, and ETFs—originally seen as tools to expand Bitcoin adoption—may instead accelerate selling during market downturns.

Warning of the “Collateral Death Spiral” Risk

As Bitcoin continues to break through certain key levels, Burry believes it is transmitting risk to broader markets. He noted that the recent plunge in cryptocurrencies has contributed to the collapse of gold and silver prices, as corporate treasurers and speculators sell profitable positions in tokenized gold and silver futures to reduce risk.

These tokenized metal futures are not backed by physical metals, which could overwhelm physical metal markets and trigger a “collateral death spiral,” he said.

“By the end of the month, due to falling crypto prices, as much as $1 billion worth of precious metals could be 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 added.

Nevertheless, some market observers point out that past crashes—from Terra to FTX—failed to infect traditional markets. Bulls now argue that regulatory clarity and cheap valuations could fuel another rebound. But Burry’s warning highlights the systemic risks Bitcoin poses as a corporate inventory asset.

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