According to him, gold and silver represent such insurance, whose recent dizzying rise to new historical records reflected people's growing fears of inflationary devaluation of common fiat money.
The fact that Bitcoin has failed as a hedge against inflation could lead to further losses, according to Burry. He added that its fall (and that of other cryptocurrencies) is paradoxically dragging down precious metals such as gold. The collapse of bitcoin and crypto asset prices is reportedly forcing investors to close their profitable positions in tokenized gold and silver futures contracts to cover their losses.
Futures contracts are agreements to buy or sell a given asset, in this case gold or silver, in the future at a price agreed upon today. They allow investors to profit from both rising and falling prices without actually owning the asset, in this case the precious metal.
Their tokenization means that the contract no longer takes the form of a traditional contract brokered by a broker, for example, but a digital token on a blockchain, such as Ethereum. Tokenized futures contracts can be traded continuously, including on weekends, not just during trading hours, because crypto assets are traded around the clock. In addition, investors hold precious metal tokens, or their futures contracts, in their own crypto wallets without the need for an intermediary.
Tokenized futures contracts for gold and silver have been experiencing a significant boom recently. More than half of the market capitalization of tokenized gold is made up of Tether Gold and PAX Gold tokens.
Tether Gold is part of Tether, the world's largest issuer of so-called stablecoins, which are cryptocurrencies pegged to conventional currencies such as the dollar. This pegging provides stablecoins with a higher degree of stability than is evident with Bitcoin or other cryptocurrencies.
Tether is also the world's largest owner of physical gold, not counting governments, central banks, and the largest exchange-traded funds (ETFs) focused on gold. Tether has around 140 tons of gold and is gradually buying more. The precious metal, which underpins the value of its Tether Gold token, is stored in Switzerland in old military bunkers from World War II.
What Burry may have overlooked
According to American investor Burry, known in the media as the stock market pessimist, there is a risk that if the price of bitcoin falls further to $50,000 per coin (it is currently around $76,000), there will be a complete collapse of the market for tokenized futures contracts on precious metals, such as Tether Gold. Bitcoin miners would fall into bankruptcy and would be forced to close their linked positions in tokenized precious metals.
Burry clearly considers such a fall in the price of Bitcoin to be quite likely, precisely because the current situation has revealed to him that Bitcoin does not provide insurance against the inflationary devaluation of conventional currencies such as the dollar.
According to Burry, positions in the tokenized precious metals segment worth approximately $1 billion were closed at the end of January this year. This is one of the reasons why there was an extraordinary drop in the prices of physical precious metals themselves, or rather in regular, non-tokenized futures contracts for them. While gold and silver quickly recovered from their extraordinary one-day loss, bitcoin continues to suffer.
However, it should also be taken into account that Burry may have overlooked the fact that bitcoin has risen in price much more dramatically than gold and silver over the past decade. Between 2015 and 2024, bitcoin appreciated by a total of nearly 39,000 percent in dollar terms, while gold added only about 120 percent and silver about 85 percent.
The question is whether, at some point, Bitcoin seemed too expensive to investors as a hedge against inflation, so they went to buy gold instead, and later silver for the same reason. This is because not only Bitcoin, but later also gold, seemed too expensive to them.
The text was originally published on the website lukaskovanda.cz.
