"Big Short" Burry: After a 40% crash, if Bitcoin drops another 10%, it will trigger "disastrous consequences"

Michael Burry, known as the "Big Short" for successfully predicting the 2008 U.S. housing market crash, warns that Bitcoin has plummeted by 40%, and if it continues to decline, it 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 published on Monday, Burry pointed out that if Bitcoin drops another 10%, one of the most aggressive Bitcoin-holding companies, Strategy Inc., could face billions in losses and would find it nearly impossible to access capital markets. He warned that a decline in Bitcoin could trigger "catastrophic consequences," including a 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 capitalization is less than $1.5 trillion, with limited household holdings and narrow 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 historic 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 have also turned to event betting as the token economy cools down 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 exchange-traded funds are insufficient to indefinitely support its price or prevent catastrophic consequences during significant declines. He noted that nearly 200 publicly traded companies hold Bitcoin.

While this helps to expand demand, "inventory assets are not permanent," he wrote. Inventory assets must be marked to market and included in financial reporting. 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 inventory company, will face billions of dollars in losses and find that the capital markets are essentially closed to it. He described these "disgusting scenarios as now within reach."

ETFs Intensify Speculation and Increase Market Correlation

Burry added that the emergence of spot ETFs has only intensified the speculative nature of Bitcoin while also increasing the correlation of the token with the stock market. He wrote that the correlation between Bitcoin and 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 of those occurring in the last 10 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 transmitting to the broader market. He pointed out that the decline in cryptocurrencies is partly responsible for the recent crashes in gold and silver, as corporate financial officers 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 buyerless black hole," he stated.

Nevertheless, some market observers pointed 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 posed by Bitcoin as a corporate inventory asset