Michael Burry, known worldwide for anticipating the subprime mortgage crisis and popularized by the film The Big Short, has projected a grim scenario for the crypto market. More than a prediction with an exact date, Burry describes a framework of systemic risk: a «death spiral» where the price drop automatically feeds back on itself.
According to Burry, the danger lies in leverage and corporate balance sheets. If Bitcoin continues to lose ground, companies that accumulated it as a reserve will see their balances under unsustainable pressure. This would trigger a dangerous cycle:
- Pressure on balances:Unrealized losses force companies to sell to cover guarantees or maintain liquidity.
- Forced sales:These massive liquidations push the price even lower.
- Credit crunch:With devalued assets, access to capital markets is blocked, accelerating the destruction of value.
For the investor, Bitcoin has been exposed as a purely speculative asset that, unlike precious metals, has not served as a refuge against inflation. «Alarming scenarios are now within reach,» warned Burry, pointing out that an additional 10% drop would leave large institutional holders with multimillion-dollar losses, leaving them vulnerable and with no margin for financial maneuver.
Faced with this scenario of volatility, many retail investors wonder if it is time to get out or if the drop offers an opportunity to buy Bitcoin at discounted prices.
What is a «death spiral» in Bitcoin?
The «death spiral» in Bitcoin is a theoretical scenario where a drastic price drop makes mining unprofitable, causing miners to turn off equipment. This reduces the security and speed of the network (hashrate), which generates distrust, further price drops and massive sales, feeding back into a bearish vicious circle.
According to a report by the venture capital firm Breed, only a few companies with Bitcoin in their treasury will manage to sustain themselves over time and avoid an inevitable «death spiral».
This dangerous «death spiral» is considered a potential detonator of the next bear market in cryptocurrencies, according to the authors of the analysis warn.
However, given that currently the majority of firms with BTC in treasury are financed through capital and not through debt, the possible implosion would, for now, be contained and under certain structural control.
The «death spiral» is a theoretical scenario where a drastic price drop triggers a vicious circle of forced sales. This phenomenon can occur on three levels:
- In the market (due to debt liquidations).
- In the collateral (companies forced to sell their reserves).
- In mining. In this last case, if the Bitcoin price in euros falls below the operating cost, miners turn off their equipment, this reduces the hashrate and the security of the network, generating distrust that pushes the value even further down.
According to the firm Breed, this dynamic is a potential detonator for the next bear market. However, there is an important nuance: currently, the majority of firms with BTC in treasury are financed through capital and not through debt. This means that, although Bitcoin shows volatility, the possible implosion would, for now, be under structural control. For those who consider that this risk is already discounted and seek to buy Bitcoin, understanding this distinction between debt and capital is key to measuring the solidity of the current support.
«Collateral death spiral», when losses jump between markets
Michael Burry has put a name to the current chaos: the «collateral death spiral». According to him, we are not facing a simple price correction, but a systemic failure caused by extreme leverage. The mechanics are relentless: when the value of cryptocurrencies falls, the collateral that supports other positions collapses, triggering margin requirements. To cover those gaps, investors are forced to sell «whatever» that has liquidity, spreading the fire beyond the digital ecosystem.
A critical example of this phenomenon is what happened on platforms like Hyperliquid, where liquidations of tokenized silver even surpassed those of Bitcoin. Burry explains that the imminent leverage on these exchanges forced the sale of digital precious metals to save positions in crypto. This dynamic has caused tokenized silver to turn sharply downward, sometimes overflowing into the physical market and demonstrating that, under pressure, these assets do not act as a refuge, but as fuel for the fire.
For the investor, this confirms that Bitcoin has not managed to consolidate itself as the «digital gold» that many promised in the face of currency depreciation. If the asset continues its decline and users do not find incentives to buy Bitcoin, the risk of insolvency for miners and corporate treasuries is real. For now, monitoring the Bitcoin price in euros and today’s behavior is essential to understand if we are facing a liquidity «black hole» or if the market can absorb the pressure of forced sales.
The domino map: who sells and why (the pieces of the cycle)
When a drop is prolonged, the market stops moving by conviction and starts moving by obligation. In this stress scenario, the domino pieces fall in a technical order that accelerates the loss of value:
|
Market Actor |
Why do they sell? |
Impact on the Cycle |
| ETFs and Funds | Redemptions: If investors withdraw their money, the fund must liquidate assets to provide liquidity. | Generates constant selling pressure that ignores the current Bitcoin price in euros. |
| Derivatives Traders | Margin calls: The increase in margin requirements forces positions to be closed if there is no more capital. | Platforms automatically close positions, accelerating the fall of the Bitcoin euro today. |
| Corporate Treasuries | Balance Sheet Risk: Risk committees force sales if losses threaten solvency. | Closes access to capital markets and destroys institutional confidence. |
| Network Miners | Insolvency: If the cost of energy exceeds the value of the asset, they sell their reserves to survive. | It is the «last piece», reduces network security and can initiate a technical «death spiral». |
Bitcoin ETFs and daily outflows
Although spot ETFs were celebrated as the definitive bridge for institutional adoption, Michael Burry warns that these vehicles have intensified the speculative character of the market. The mechanics are simple but dangerous: when retail investors and institutions decide to withdraw their capital, the ETF must make redemptions. To pay for these outflows, the fund manager is forced to sell Bitcoin on the open market, adding selling pressure just when demand is weakest.
Really, January records show some of the largest daily outflows since November, with three record episodes concentrated in the last ten days of the month. According to Burry, this is not just a portfolio adjustment, it is a sign that many investors are finally «giving up». Observing Bitcoin’s correlation with the S&P 500, it is clear that the asset behaves as a pure risk asset and not the promised refuge.
For those who are keeping an eye on the price of Bitcoin, Burry’s message is an invitation to prudence: although the size of the crypto market limits systemic contagion to the global economy, the correction for those who have recently accumulated positions could be just beginning. If Bitcoin today continues to lose supports amid these massive redemptions, the opportunity to buy Bitcoin again will depend on the ETF flow managing to stabilize before capitulation is total.
Anatomy of the Spiral: The impact on key players
|
Affected Sector |
Main Risk | Pressure Mechanism |
Market Consequence |
| Bitcoin-Treasury Firms | Balance sheet deterioration | As the Bitcoin price falls, financial metrics worsen, making their external financing more expensive. | They make defensive decisions: spending cuts, cessation of purchases, or preventive sales to protect capital. |
| Traders and institutions (Leveraged) | Margin calls | Positions in derivatives demand more collateral. If capital is not contributed, an automatic liquidation of the portfolio occurs. | They sell «whatever» to cover gaps, even metals, sinking Bitcoin further due to excess supply. |
| Bitcoin Miners | Technical capitulation | They have fixed costs (energy and debt) in fiat. If the price falls below their breakeven point, the operation becomes unprofitable. | They sell their accumulated reserves to survive or turn off machines, reducing network security in the short term. |
This story is not just about Bitcoin going up or down, it is about how things break when the market runs out of air. A price drop hurts, yes, but a drop with leverage, collateral, and scarce liquidity can force chain sales.
Therefore, more than reacting to the headline of the day, what protects you is the basics: good custody, clear horizon, and decisions that do not depend on «being glued to the screen». Avoid leveraging if you do not master it, keep liquidity wisely, and have a plan before the market turns ugly. Your crypto, your rules.
