On Thursday, June 17, American investor Michael Burry, who gained fame after his crisis-era bets on the housing market became the subject of the film “The Big Short,” warned about losses “the size of countries” should crypto and meme stocks decline.
“All hype/speculation is doing is drawing in retail before the mother of all crashes,” Burry wrote on a tweet that has since been deleted. “When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries. History ain’t changed.”
The “Mother of all Crashes” is coming
Burry, who heads Scion Asset Management, is closely followed by meme stock investors. In 2019, he took a bullish stance on video-game retailer Gamestop, which helped lay the foundations for an epic retail investor frenzy earlier this year. As part of this, Burry even underscored the company’s untapped potential in several letters to its bosses. (Related: Criminal Wall Street oligarchs stifle populist trading movement that sent GameStop stocks soaring.)
But this year, his views have switched and he’s now warning about the dangers in the market.
“If I put $GME on your radar, and you did well, I’m genuinely happy for you,” he tweeted in January. “However, what is going on now – there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.”
In a follow-up tweet, he made a comment on this year’s rally of crypto and meme stocks, calling it the “Greatest Speculative Bubble of All Time in All Things.”
Burry cautioned that bitcoin was overpriced and that the current crypto boom was being fueled by a dangerous borrowing binge.
In its brief history, crypto has been notably volatile and subject to periods of euphoria, crashes and long bouts of languishing prices. The last time this happened was in December of 2017, this was when bitcoin reached a value near $20,000 before tumbling into a multiyear retrenchment that it’s only just come out of.
While it’s impossible to know if this cycle will play out again, Burry seems to be betting that this will be the case for it and that it’ll drag meme stocks down with it. In particular, both are being driven by social media trends and not necessarily by fundamental factors. At the same time, many experts speculate that the low-interest-rate environment fostered by the Federal Reserve has helped create bubbles. Along with fiscal stimulus checks, this has given some individual investors fodder to make high-risk wagers on the market.
Burry himself has called the Federal Reserve a “misguided monster” for focusing too much on preventing market declines. (Related: U.S. stock market more overvalued now than right before the dot-com crash of 2000.)
Crypto, meme stocks starting to decline
While the market at the moment isn’t contending with as severe a downturn as Burry’s “mother of all crashes” tweet implies, the momentum for both crypto and meme stocks is decidedly downbeat.
Shares of popular meme stocks are down, with both GameStop and AMC – both of which were bolstered by the Reddit-fueled retail-investor frenzy earlier this year – were trading lower last week, amid a broad rally in equity markets. That said, both stocks remain higher than they were last year, with Gamestop up 964 percent in the year to date and AMC up 2,500 percent.
Crypto prices have also fallen. Bitcoin is down 7 percent and is trading at its lowest level in weeks, changing hands at $32,669. Meanwhile, the second-largest cryptocurrency, ether, is down by 10 percent, trading at $1,951.58 as of reporting time.
Bitcoin, in particular, has seen a particularly brutal selloff, obliterating what’s known as the basis trade. This involved a trader buying bitcoin in the spot market today and selling long-dated futures, locking in the discrepancy between the two prices.
Prior to the plunge, hedge funds had piled into the trade, which previously could reliably produce double-digit annual gains. This was because bitcoin is inherently scarce and should theoretically rise in value over time, meaning that longer-dated futures are more expensive than shorter ones.
But questions about bitcoin and other cryptocurrencies’ environmental impact, as well as a crackdown on crypto trading in China, have reversed that, driving the price of the coin down. At one point, bitcoin’s declined reached 12 percent, briefly wiping out the gains it made in 2021.
For more on the rocky future of cryptocurrencies and meme stocks, follow Risk.news.
Sources include:
Bloomberg.com 1
Markets.BusinessInsider.com
MarketWatch.com
