Bitcoin has fallen below $70,000. An investor from the "Downgrade Game" - on how dangerous it is

The value of bitcoin during trading on February 5 fell below the psychological mark of $70,000 for the first time since November 2024. According to CoinMarketCap, bitcoin was worth about $69,405 at the time of publication.

"There is no compelling reason to slow or stop bitcoin's decline," iconic investor Michael Burry, a prototypical character from the book and movie "The Downgrade Game," wrote in Substack this week. Michael Burry said Strategy (formerly MicroStrategy) Michael Saylor's company, Strategy (formerly MicroStrategy), is particularly vulnerable to cryptocurrency collapse. He wrote in a blog post that investors should prepare for "terrifying scenarios."

- if bitcoin falls below the $70,000 level, Strategy would face a loss of more than $4 billion and effectively "lose access to the capital markets," Burry writes;

- with the bitcoin price at $60,000 Strategy, he said, is facing an "existential crisis."

- At $50,000, miners would go bankrupt and be forced to sell their bitcoin reserves, and tokenized metal futures (particularly gold and silver) would "collapse into a black hole with no buyers," Burry said. Physical gold and silver are likely to buck this trend thanks to investor demand for a "safe haven," he suggests.

Bitcoin has proven to be a "purely speculative" asset, not at all a hedge against inflation like gold and other precious metals, Burry writes. According to him, that's why the cryptocurrency is falling differently than most securities or other assets: a prolonged fall in bitcoin could itself unravel a "death spiral" that would lead to massive losses.

Optimistic forecasts about bitcoin's growth were based on assumptions about its expanding adoption, the investor continues. But the reality turned out to be different: bitcoin's share of illicit transactions has fallen to a minimum, retailers and charities are losing interest in payments with the cryptocurrency because of its falling value, and in fact bitcoin is mostly held by speculators and companies like Strategy that bought it as a treasury asset, Burry describes. Nearly 200 publicly traded companies now have bitcoin on their balance sheets, he said.

However, this is too unreliable a source to support the value of cryptocurrency, he emphasizes. "Companies are required to value treasury assets at market value and include them in financial statements. If the asset becomes cheaper, risk managers start pressuring management, advising them to sell it," Burry writes.

The launch of spot exchange-traded funds (ETFs) on bitcoin in 2024 has only reinforced its speculative nature and correlation with the stock market, says an investor. This has led to investors launching aggressive measures to reduce risk and liquidate positions as losses mount. This process is already visible: on January 30, the BlackRock Bitcoin-ETF (IBIT) recorded a record outflow of $528.3 million in a single day. On January 29, positions worth $1.75 billion were liquidated across the entire crypto market, with up to 95% of the liquidations coming from long positions, Burry wrote. Further losses, he said, could quickly add pressure to the balance sheets of large holders and trigger sell-offs across the crypto ecosystem, causing a widespread price collapse.

The fall of bitcoin is having a negative impact on the broader markets, Burry said. He says it was one of the reasons for the collapse in gold and silver prices: speculative traders and corporate holders had to sell profitable positions in tokenized gold and silver futures to reduce risk in their portfolios. These tokenized metal futures are not backed by real bullion and can put pressure on physical metals trading, creating a "death spiral due to the associated risks," he writes.

Strategy started buying bitcoin in 2020 and has become the largest corporate holder of this cryptocurrency. At the same time, it is traded on Nasdaq with a capitalization of about $37 billion and is included in the Nasdaq 100 index.

The company, which will release quarterly results on Feb. 5, is not in financial trouble, Strategy co-founder Michael Saylor said. He said Strategy has not faced demands for additional collateral and does not expect to have to sell bitcoins, Bloomberg reports. Strategy has also built up a $2.25 billion reserve through the sale of shares that will cover interest payments and dividends for more than two years. But without a bitcoin recovery or new investor demand for the stock, the company's room for maneuver is limited, the agency said.

Sailor, who had a birthday the day before, wrote on social media X: "If you want to give me a present, buy yourself some bitcoins."

This article was AI-translated and verified by a human editor