Big Short Prototype: Bitcoin Triggers Gold and Silver Plunge! If a certain situation occurs, it could cause metal futures to collapse.

Renowned investor Michael Burry warns that the decline in Bitcoin has triggered over $1 billion in precious metals liquidations. If this situation continues, it could lead to miner bankruptcies and a collapse in metal futures, putting institutions like MicroStrategy at risk of survival.

The Big Short Prototype: Recent Bitcoin Trends Are One of the Causes of the Gold and Silver Crash

Michael Burry, the real-life inspiration for the movie “The Big Short,” posted on Substack warning that if Bitcoin ($BTC) continues to fall, it could trigger a severe chain reaction. Last weekend, gold and silver prices plummeted, and he believes part of the reason is the downward trend in Bitcoin.

Burry explained that precious metals futures contracts and tokenized assets are often lacking physical backing, which causes them to be closely linked within the financial system.

When institutional investors or corporate finance departments face cryptocurrency losses, they are forced to sell profitable precious metals holdings to deleverage or raise funds. It is estimated that by the end of January, up to $1 billion worth of precious metals positions had been liquidated due to cryptocurrency price declines.

Image source: Goldprice.org Recent seven-day trends in gold and silver

If Bitcoin continues to fall, three potential scenarios may unfold

Burry openly states that if Bitcoin cannot stop its decline, three “nauseating” scenarios will follow, further damaging the financial markets.

Bitcoin Falls Below $70,000: Institutions Face Massive Unrealized Losses

Burry speculates that if Bitcoin drops below $70,000, MicroStrategy (now called Strategy), a Bitcoin reserve company, could face over $4 billion in paper losses. At that point, the doors to capital markets might close to it, making it difficult to raise funds from investors.

Additionally, other institutions holding Bitcoin could face asset impairments of 15% to 20%, forcing risk management teams to adopt more aggressive measures to cut losses.

Burry emphasizes that recent volatility in gold and silver prices indicates a high correlation between margin accounts, tokenized metal futures, and crypto collateral. If prices cannot be supported, this chain reaction of declines is highly likely to occur.

Bitcoin Drops to $60,000: Strategy Faces Survival Crisis

If Bitcoin further declines to $60,000, Burry believes Strategy will face a survival crisis. As Bitcoin prices continue to fall, rumors of the company selling off Bitcoin are rampant.

Since Strategy is the publicly listed company holding the most Bitcoin, any selling activity would pose a significant headwind to the crypto market.

Strategy’s CEO hinted last year that if the company’s stock price relative to its Bitcoin holdings (mNAV) falls below 1 and fundraising fails, selling Bitcoin could be a last resort.

According to data on Strategy’s website, the current mNAV is 1.08, quite close to the warning line.

Bitcoin Drops to $50,000: Miner Bankruptcies and Metal Futures Collapse

If Bitcoin falls to $50,000, the worst-case scenario could unfold. Burry predicts that crypto miners will go bankrupt due to unprofitability and be forced to liquidate their Bitcoin holdings.

This would cause the tokenized metal futures market to collapse into a black hole with no buyers. However, he also added that physical metal markets might decouple from futures markets due to hedging demand, potentially moving independently and avoiding a full-scale crash.

Burry is bearish on Bitcoin, believing it lacks intrinsic value

In his analysis, Burry further states that the recent bull run in Bitcoin has been mainly driven by spot ETF issuance and institutional interest, but he views these as temporary factors rather than signs of genuine adoption.

He points out that as Bitcoin’s correlation with the S&P 500 approaches 0.5, combined with ETF capital outflows, any wealth effect will be limited.

Long-term bearish on Bitcoin, Burry criticizes its lack of intrinsic value and widespread adoption as reasons for its continued decline. He considers it a speculative asset that cannot serve as a hedge against currency devaluation like precious metals.

Burry disappeared from the community for a while and only returned last year. He previously stated that Bitcoin is worthless and likened it to the tulip bubble of this era.

Further reading:
The real-life “Big Short” protagonist is researching tokenization! Recently called Bitcoin a tulip bubble and accused it of facilitating crime