Bitcoin has recently experienced a significant decline, plummeting below $70,000 for the first time since 2024, resulting in a loss of over 20% throughout the year. Hedge fund manager Michael Burry, known for his portrayal in “The Big Short,” suggested that the cryptocurrency market is undergoing a “collateral death spiral.” This situation is attributed to high leverage on crypto exchanges, exacerbated by rising metal prices. As the values of supported crypto collateral diminish, tokenized metals must be liquidated. Burry’s insights were shared on his paid Substack page, shedding light on the complex factors influencing this downturn.

“…crypto was experiencing a ‘collateral death spiral’ thanks to ‘sky high leverage’ on crypto exchanges due to rising metal prices.”

While Bitcoin’s decline is evident, Burry indicates that the broader crypto market tends to follow Bitcoin’s trends. Notably, $1 billion in crypto positions were liquidated recently, aligning with Bitcoin’s drop below the $68,000 threshold. Analysts predict that Bitcoin may continue to fall, potentially reaching as low as $40,000 in the coming months. The increasing intertwining of cryptocurrencies with traditional markets underscores the stakes for investors.