Hedge fund manager Michael Burry, famed for his role in 'The Big Short', has issued a stark warning about a 'collateral death spiral' unfolding in crypto markets. The trigger is not Bitcoin itself, but the violent unwinding of leveraged positions in tokenized precious metals, particularly silver.
Burry highlighted that on at least one crypto venue, the Hyperliquid exchange, liquidations of tokenized silver futures briefly exceeded those of Bitcoin during a recent market downturn. He characterized this as a vicious cycle where falling crypto prices, used as collateral for these leveraged trades, force liquidations of tokenized metals, which in turn drives prices down further, prompting more selling. 'Sky-high leverage on these crypto exchanges due to rising metals prices meant that as the crypto collateral fell, the tokenized metals had to be sold,' Burry said. 'This is a collateral death spiral.'
The dynamic was amplified by a sharp pullback in metals prices colliding with crowded, highly leveraged long positions and thin liquidity. At the peak, tokenized silver futures logged one of the largest wipeouts across crypto markets. This event underscores how crypto-native platforms, which allow 24/7 trading of tokenized contracts on assets like gold and silver with less upfront capital, have become alternative rails for macro trades. In times of stress, this integration can lead to unexpected and severe liquidation cascades.
Burry's warnings extend beyond the immediate liquidation event. He predicts that Bitcoin's continued bear market could trigger an impending catastrophic sell-off of up to $1 billion in precious metals. He argues that Bitcoin has failed as a safe-haven asset like gold, and its high correlation with metals in a downturn creates 'sickening scenarios.' With Bitcoin down over 17% monthly and trading around $76,362, such bearish narratives risk accelerating capital flight from risk assets.
Furthermore, Burry pointed to significant risks for corporate Bitcoin holders. He warned that a further 10% drop in BTC could push major holders like MicroStrategy, which holds over 713,502 Bitcoin, into an 'existential crisis' with millions in unrealized losses. He noted that nearly 200 public companies hold Bitcoin, and sustained price declines could lead company risk managers to advise selling their stashes, especially as spot Bitcoin ETFs have recently seen some of their largest single-day outflows.
