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Was ‘Big Short’ investor Michael Burry right about crypto and meme stocks facing ‘mother of all crashes’?

Was ‘Big Short’ investor Michael Burry right about crypto and meme stocks facing ‘mother of all crashes’?

Crypto markets were under heavy selling pressure on Monday, with the sector facing a bearish breakdown of trend.

Bitcoin
BTCUSD,
-8.93%,
the world’s largest crypto by market value, was down nearly 7% and trading at its lowest level in weeks, changing hands at $32,669; while Ether
ETHUSD,
-13.83%,
on the ethereum blockchain, was down over 10% and trading at $1,951.58 on CoinDesk.

Bitcoin is still nursing a 12% year-to-date gain, but that is a pittance in the world of crypto and curtailed considerably from its over 100% year-to-date gain in earlier in the year. Ether is up 163% but its traverse below the psychologically significant level at $2,000 puts it around its lowest point since late May.

However, Michael Burry, who garnered fame for his crisis-era bets on the housing market in 2008-’09, might say that he forewarned investors who had become hyped on meme stocks and crypto in 2021.

Burry, whose investments over a decade ago were made into the movie “The Big Short,” issued a since-deleted tweet on Friday, cautioning of an impending “mother of all crashes.”

Although the market isnt contending with as severe a downturn as “the mother of all crashes” tweet might imply, the momentum for bitcoin and other crypto is decidedly downbeat.

Meanwhile, shares of popular meme assets AMC Entertainment Holdings
AMC,
-6.02%
and GameStop Corp
GME,
-6.29%.
were trading lower on Monday, amid a broad rally in equity markets. That said, AMC remains up over 2,500% in the year to date and GameStop was up 964%.

Punditry on the outlook for crypto and meme stocks, which are driven primarily by social-media trends and not necessarily by fundamental factors, has flown fast and furiously. And strategists have speculated that the low-interest rate environment fostered by the Federal Reserve has helped to create bubbles in pockets of the market, along with fiscal stimulus checks that have given some individual investors fodder to make high-risk wagers on the market.

Crypto, in its brief history, has been notably volatile and subject to periods of euphoria, crashes and long bouts of languishing prices. That was the case in December 2017, as bitcoin touched a value near $20,000 before tumbling into a multiyear retrenchment.

It’s impossible to know if that cycle will play out again.

The most recent pullback in bitcoin and its ilk is being blamed on a digital-currency crackdown in China, which has rippled through the sector. The People’s Republic of China expanded its ban on mining crypto and reportedly ordered Alibaba’s payment unit Alipay to crack down on crypto trading.

It isn’t just Burry seeing some cracks in the uptrend for bitcoin.

Data from CoinShares indicated that digital asset investment products saw a third consecutive week of outflows totaling nearly $80 million, representing the longest bear run in outflows since February 2018, with bitcoin seeing the most intense selling.

Katie Stockton, technical analyst at Fairlead Strategies, said that the recent declines were testing support for bitcoin and Ether and other assets in the complex.

She said that bitcoin selling appears to be overdone but is advising clients to wait for jumping into the fray in an attempt to identify bargains.

The decline for crypto also comes as the Dow Jones Industrial Average
DJIA,
+1.76%
enjoyed its best day since March and the S&P 500 index
SPX,
+1.40%
logged its best daily rise since mid May, leading some to speculate that investors were shifting assets from unconventional assets to more traditional ones.

About the author

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Julia Mangels

Julia has handled various businesses throughout her career and has a deep domain knowledge. She founded Stock Market Pioneer in an attempt to bring the latest news to its readers. She is glued to the stock market most of the times and just loves being in touch with the developments in the business world.

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