Michael Burry Is Predicting an Even Bigger Crash.

As you guys probably saw from my video a few weeks ago, Michael Burry, the man that famously predicted the '08 housing bubble, is currently predicting another very large recession and stock market crash in 2022 on the back of all the inflation we're currently seeing. In typical Burry fashion, he actually predicted this all the way back in February 2021, so he's always early, Michael Burry.

But at the same time, Burry made another bold prediction, one that completely flew under the radar, and that was that cryptocurrencies were in massive bubble territory and were ready to pop. He said, quote, "Cryptocurrencies are a bubble that pose more risk than opportunity," adding later on that, "FOMO parabolas don't resolve sideways. When crypto falls from trillions or meme stocks fall from tens of billions, Main Street losses will approach the size of small countries. History ain't changed." Unfortunately for those heavily in crypto, that prediction aged very well. Year to date, we've seen Bitcoin fall 57%, Ethereum 70%, and even Elon's favorite Dogecoin has fallen 59%.

At the start of the year, Bitcoin's market cap was $891 billion; it currently sits at $369 billion, a $522 billion reduction in approximately six months. It's about the same size as the GDP of Ireland. Burry was right; losses are amounting to the size of small countries. But that's not all Burry had to say on crypto. In fact, he's been tweeting about it a lot recently as well. So in this video, let's hear what he has to say and what he thinks we as investors should do about it.

"The crypto can save us from money printing. Central banks take all your money, buy Bitcoin." Hard to ignore, the hard edge collapse of Bitcoin continues to tumble; Bitcoin is headed to zero. Now, one thing that should be noted is Burry is not a crypto hater. In fact, when it comes to the open ledger system that is the blockchain and the finite nature of many of these coins, he actually thinks that's pretty smart. He said himself back in 2021 that he doesn't hate Bitcoin and he followed up by saying he actually believes that most proponents are actually correct in their arguments for why it's relevant at this point in history.

However, despite these points, there's no doubt Burry has been a critic of Bitcoin over the years for three main reasons. Two have to do with the ideas behind crypto itself, and the other has to do with how investors treat it. So let's run through them. Point number one, when we're talking about crypto as a currency, Burry has always held the opinion that if it gains too much popularity, governments will just move to destroy it. This has been a very popular belief of many in the finance sector. He said, quote, "In his view, the long-term future is tenuous for decentralized crypto in a world of legally violent, heartless centralized governments with lifeblood interests in monopolies on currencies."

However, in the short run, anything is possible, and that's why he's not short Bitcoin. While this hasn't been a big contributing factor to the recent crashes we've seen in crypto, it is a flaw in the long-term thesis of crypto. The reality of this situation is that governments like to control their currency, so if there's anything that could threaten that control, of course, they will look to crush it. And so far, we've already seen China outlaw it.

But the reason governments generally haven't crushed it yet is because, at the moment, it doesn't pose a very big threat, as it's simply used as a financial asset and not really as a currency. However, in the long run, if Bitcoin or Ethereum did start to gain serious traction and you know threaten to be an everyday currency that people chose, say over the US dollar, the government would more likely than not use their power to crush it so they can stay in control of their economy.

This is a viewpoint that has also been held by macro investing god Ray Dalio. The governments don't want to have it successful; they don't want it to happen. We're starting to see governments like El Salvador— I know that's not exactly going to be the leading government on this—but there are governments that may take this on. No, no, no, no. You have El Salvador taking on, and you have India and China getting rid of it, and you have the United States talking about how to regulate it, and it could still be controlled.

Do you believe that regulation ultimately will make something like Bitcoin and other cryptocurrencies have a future, or do you think regulation will kill it? I think at the end of the day, if it's really successful, they'll kill it, and they'll try to kill that, and I think they will kill it because they have ways of killing it.

So that's Burry's first point: the governments will crush it. But beyond this, you know, one huge argument we've seen from the crypto community over the past years is that cryptocurrencies are a great hedge against inflation. Because the idea here is that, because many of these coins, Bitcoin, for example, only have a finite number that will ever be created, then an asset like that should hold up very well against the dollar during inflationary periods like what we're seeing now—periods where the Federal Reserve prints just a ton of money, consumers in the government do a lot of spending, and inflation just skyrockets.

People also say this about gold; you know, gold is a finite resource and therefore generally performs well during periods of economic instability. Now, unfortunately for cryptocurrencies like Bitcoin, however, this hypothesis has just not worked out in reality, proving that, at least at this moment in time, Bitcoin is seen much more as a speculative game than as a true financial asset. As economic conditions have worsened and investors have started to feel the pinch, they've been running away from cryptocurrencies, taking their money out as opposed to putting more money in.

Burry highlighted this fact very recently by tweeting, "Are we sure Bitcoin is not just another risk asset in the NASDAQ?" As you can see by the chart he posted with that tweet, Bitcoin has performed almost exactly as the NASDAQ has done over the past six or seven months. So what does this tell us?

Well, of course, the NASDAQ is home to the big pumped-up tech companies in America that are now currently dropping as speculators get out of the market. With Bitcoin almost perfectly mirroring the performance of these stocks, it shows you that at this moment in time, price movement in cryptocurrencies is also overwhelmingly due to speculation, just like those stocks. Currently, Bitcoin fails to separate from the pack and hold up as a supposed inflation-proof asset.

And that's the third and fundamental point that has stopped Burry from getting into crypto. At the end of the day, cryptocurrencies have no intrinsic value; they are non-productive assets. What this means is that the price is only determined by what the next person is willing to pay for them, aka speculation, and it's not based on underlying cash flows. While you can make that argument as well for gold or cash, these assets do on some level have imputed value because of their importance within the overarching financial system.

Gold, while non-productive, has been used as a financial asset literally before the time of Christ, and the US dollar has the trust of nations around the world as a reserve currency. Bitcoin, on the flip side, has been around for just over ten years and really isn't used for anything except speculation. This is Warren Buffett explaining exactly that point at this year's Berkshire Hathaway annual shareholder meeting: "If the people in this room owned all of the farmland in the United States and you offered me a one percent interest in it, I’ll write your check this afternoon. If you tell me you own one percent of the apartment houses in the United States, I'll write you a check. You know it's very simple. Now, if you told me you owned all of the Bitcoin in the world and you offered it to me for $25, I wouldn't take it because what would I do with it? I have to sell it back to you one way or another. I mean, they have the same people, but it isn't going to do anything. The apartments are going to produce rental, and the farms are going to produce food."

That explains the difference between productive assets and something that depends on the next guy paying you more than the last guy got. And there's only one currency that's acceptable. I'd say, I mean, you can come up with all kinds of things, but in the end, this is money. Anybody that thinks the United States is going to change to where they let Berkshire money replace theirs, you know, it's out of their mind.

And that's also Burry's fundamental problem with crypto. It's only ever been used as a gambling machine, and its price has always been set by the next most greedy person that has a fear of missing out. He tweeted last year that he saw the greatest speculative bubble of all time in all things, noting that Bitcoin is a speculative bubble that poses more risk than opportunity.

In the tweet that I mentioned earlier, all hype speculation is doing is drawing retail investors in before the mother of all crashes. FOMO parabolas don't resolve sideways; history ain't changed. And so far, that is exactly what's happened. Crypto is, you know, fundamentally speculative, and now investors are learning that sometimes when you gamble, you lose.

He doesn't think this is over anytime soon either. He quoted Tom Siebel in a recent tweet saying, quote, "I don't think this is going to be over until everybody swears they'll never own an NFT, never own crypto, and they'll never own a technology stock." So Burry, over the past year, has really been quite bearish on crypto, and ultimately the reasoning always comes back to the fundamentals; it has no intrinsic value, and therefore the price is always the result of the market's appetite for speculation.

This makes crypto a pretty easy pass for anyone that has a long-term value mindset. All those YouTubers and, you know, FinTwits that say Bitcoin will be at a hundred thousand dollars in two weeks, or that Ethereum will replace the US dollar in two years—really, you just need to ignore them and just invest based on your own conclusions. This is summed up really well in another Burry tweet from last year that was brought to my attention by my friend Hamish Hodder in his video the other week.

Burry basically explains in one single tweet the entire foundation of his investing success: He says, quote, "Knowing saves half the battle." Got it? It's not hard. Analyze, think independently, be informed, find the data, and you know a lot that no one else does. If you are able to do that, massive losses from speculative bubbles like this bursting are a lot easier to sidestep because chances are you never went anywhere near them to begin with.

So anyway, guys, that's it for this video. What are your thoughts on crypto? Definitely let me know. Do you think it bounces back from here? Will it finally die in the kind of rough economic conditions that we're going to cop across the next few years? I'd be really interested. Let me know your thoughts. As always, please leave a like if you enjoyed, subscribe to see more, but that's it for today, guys. I'll see you all in the next video.

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