‘Big Short’ Investor Who Predicted the 2008 Market Crash Has Stark Warning for Bitcoin: What Investors Should Do Next
Written by
Alan Joseph
Edited by
Rebekah Evans
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Michael Burry is highly respected figure in the investing world. While he boasted a strong reputation prior to the Great Recession, his real claim to fame came after successfully shorting the 2008 housing crash, earning him the nickname “The Big Short.”
Last week, he sounded the alarm to his Substack subscribers, predicting more headwind for the world’s biggest and most popular cryptocurrency, bitcoin. For context, bitcoin has shed $1 trillion over the last several months, according to Barron’s, with its price plunging almost 50% from its peak four months ago.
Burry sees parallels between the selloff and previous downturns, contending that investors have not seen the worst of it yet and warns of a potential “death spiral.” Here’s what investors should do next.
Why Burry Thinks Bitcoin Could Keep Falling
One of the primary drivers, according to Burry, is forced selling. In simple terms, the digital asset is highly leveraged and may test lower levels due to panic selling triggered by margin calls. In fact, $2.65 billion in futures positions were liquidated in a single day, according to CoinGlass. Additionally, he argued the crypto lacks substantive utility with real world application and is more of a speculative asset with “no organic use case.”
Miners of bitcoin are also in peril. Burry warned if bitcoin dropped to $50,000, most miners would go bankrupt and the market for tokenized metal futures would likely implode due to a lack of buyers.
What Investors Need To Do
Before you do anything: Slow down, walk away and breathe.
Nobel Prize-winning psychologists showed in their research, published in Econometrica, that losing feels far more intense than winning: “The aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount.”
Prudent decisions are rarely made when you’re experiencing anxiety, making it necessary to step back and return at a later moment to ensure hasty (and costly) decisions are avoided. After that, ask yourself if you can tolerate another major correction. If the answer is no, your portfolio may be overexposed and need rebalancing. This will require guidance from a certified financial advisor.
Stick To Long-Term Plans
If this isn’t your first rodeo in the markets, you likely know that this too shall pass. After all, bitcoin is widely considered one of the more extreme assets prone to volatility and crashes. Since its inception, it has experienced numerous cycles of growth and decline. If you believe in it as long-term project, price swings alone shouldn’t be a reason to exit.
Keep Crypto a Small Portion of Your Portfolio
The consensus, across virtually every certified financial wealth manager, is to allocate a small percentage of your overall portfolio to bitcoin. Advisors seldom suggest anything above 5% to 10% given bitcoin’s history.
Editor’s note: This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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