Michael Burry Warns Bitcoin Crash Could Trigger Financial Chaos

Michael Burry Sounds the Alarm on Bitcoin

Michael Burry, the investor famous for predicting the 2008 housing crash in "The Big Short," is warning that bitcoin’s ongoing slump could lead to serious financial consequences. In a recent Substack post, Burry laid out what might happen if the price of bitcoin keeps falling.

Bitcoin has been struggling. It ended January with its fourth straight month of losses—the longest losing streak since 2018—and is down about 37% from last year’s peak. Burry believes this bear market could trigger a chain reaction affecting both crypto investors and traditional markets.

How Bitcoin’s Decline Could Ripple Through Markets

Burry points to a connection between bitcoin and other markets, particularly gold and silver. He suggested that last week’s drops in metal prices were partly caused by bitcoin’s decline. His reasoning: both metals futures and cryptocurrencies are tokenized assets, meaning their value isn’t backed by the physical asset itself.

“Sickening scenarios have now come within reach,” Burry wrote, explaining three possible consequences if bitcoin continues its fall.

Scenario 1: Major Losses for Crypto-Holding Institutions

If bitcoin drops below $70,000, Burry predicts significant losses across the financial industry.

Strategy, Michael Saylor’s famous crypto treasury, could lose over $4 billion. Burry warned that the firm might find capital markets “essentially closed,” meaning it would be hard to raise more cash from investors.

Other institutions could face losses of 15% to 20% on their bitcoin holdings. This, in turn, could make risk managers more cautious, potentially amplifying the sell-off.

Burry explained that the recent dips in gold and silver hint that such a decline in bitcoin is possible. He added that the interconnectedness of portfolio margin accounts, tokenized metals futures, and crypto collateral could push bitcoin below $70,000 if these losses persist.

Scenario 2: Strategy Faces an Existential Crisis

If bitcoin falls further to $60,000, Burry warned it could create an “existential crisis” for Strategy, Saylor’s crypto treasury.

Strategy has been under scrutiny as bitcoin prices tumble, with rumors swirling about the firm potentially selling some of its holdings. Since Strategy is the world’s largest corporate bitcoin holder, any sale could create a major headwind for the broader crypto market.

Last year, Strategy’s CEO suggested the firm might sell some bitcoin as a “last resort” if a measure called mNAV—a stock price metric relative to bitcoin holdings—falls below 1. Currently, the company’s mNAV is 1.1.

Burry didn’t go into detail on what the existential crisis would look like, but the warning suggests that a further drop in bitcoin could destabilize one of the largest players in the crypto world.

Scenario 3: Miners Go Bankrupt and Metals Market Collapses

Burry’s most extreme scenario comes if bitcoin hits $50,000. He predicts that crypto miners would likely go bankrupt, selling off their bitcoin reserves in the process.

This could trigger a wider market collapse, including tokenized metals futures. According to Burry, these markets could “collapse into a black hole with no buyer,” though physical metals might remain supported by safe-haven demand.

This scenario highlights how a bitcoin crash could extend beyond cryptocurrencies, affecting financial instruments and markets that many people might not realize are connected to crypto.

Burry’s History with Bitcoin

Burry has been outspoken about bitcoin for years. He has called it “not worth anything” and compared it to the tulip mania of the 1600s, warning that its price resembles a bubble rather than a stable investment.

Despite stepping away from social media for a period, Burry returned last year and continues to voice concerns about crypto markets. His recent Substack post reinforces his skepticism, especially amid bitcoin’s longest losing streak in several years.

What This Could Mean for Investors

If Burry’s warnings come true, investors could face major challenges:

• Crypto institutions could see multi-billion-dollar losses, potentially destabilizing financial markets.
• Strategy, the world’s largest corporate bitcoin holder, could face a crisis that shakes investor confidence.
• Miners and tokenized markets could collapse, causing ripple effects in unexpected areas, including metals futures.

For investors, this serves as a reminder of the risks inherent in crypto markets, especially when they are interconnected with traditional finance.

The Takeaway

Burry’s message is clear: bitcoin’s decline isn’t just about crypto—it has the potential to affect broader financial markets. Investors, both individual and institutional, should pay attention to the risks and plan for scenarios that could affect everything from mining operations to metals trading.

While Burry’s predictions may seem extreme, they highlight how volatility in one market can spill over into others. For anyone invested in bitcoin or related markets, understanding these risks could be crucial to protecting assets in a potentially turbulent year.