'Big Short' investor Michael Burry details the 'sickening scenarios' possible if bitcoin continues to fall

• Michael Burry is sounding the alarm on what could happen if bitcoin keeps slipping
• In a Substack post, "The Big Short" investor outlined various consequences if BTC's sell-off continued.
• In the worst-case scenario, Burry said he saw crypto miners going bankrupt and metals plunge.

Michael Burry is forewarning of a new type of financial catastrophe — one that could happen if bitcoin doesn't break its nosedive.

In a new Substack post, the investor of "The Big Short" fame pointed to bitcoin's deepening bear market and said he believed there could be serious consequences if the price of the crypto were to continue to fall.

His warning is coming during a rough time for bitcoin investors. The crypto finished January with its fourth straight month of losses, marking the token's longest losing streak since 2018. The coin is also down around 37% from its peak last year.

Markets are already seeing some consequences from bitcoin's rout, Burry suggested. The former fund manager said he believed the plunge in gold and silver prices last week was partly brought on by the decline in bitcoin, and made the case that the two assets were connected as metals futures contracts aren't backed by the physical asset itself, similar to how crypto is tokenized.

"Sickening scenarios have now come within reach," Burry said, outlining three other consequences in particular he believed were possible if bitcoin continued its free-fall.

Here are the three scenarios Burry sees:

1. Steep losses for Strategy, other crypto-holding institutions

If bitcoin were to drop under $70,000, there could be hefty losses across the financial industry, Burry speculated.

Strategy, Michael Saylor's iconic crypto treasury, would likely record over $4 billion in losses and would "find capital markets essentially closed," Burry said, suggesting the firm would be unable to raise more cash from investors.

Other institutions would likely take a 15%-20% loss on their bitcoin holdings, leading risk managers to "get more aggressive," he added.

Burry said the recent drops in gold and silver prices suggested such a decline in bitcoin was also possible.

"These moves if sustained could result in Bitcoin breaking $70,000 because of this interconnected world of portfolio margin accounts, tokenized metals futures, and crypto collateral," he wrote.

2. Strategy sees an existential crisis

If bitcoin were to fall to $60,000, that could result in an "existential crisis" for Saylor's Strategy, Burry said, without elaborating further.

Saylor's Strategy has come under more scrutiny from crypto investors in recent months as the price of bitcoin continues to tumble. Rumors, in particular, have swirled around the firm potentially selling some of its bitcoin holdings, an event that's thought to be a huge headwind for the broader crypto market, given that Strategy is the world's largest corporate bitcoin holder.

Last year, Strategy's CEO suggested the firm could sell some of its bitcoin holdings as a "last resort" if mNAV, a measure of the company's stock price relative to its bitcoin holdings, drops below a level of 1. The company's mNAV currently stands at 1.1, according to Strategy's website.

3. Crypto miners go bankrupt, the metals market collapses

If Bitcoin were to drop to $50,000, crypto miners would likely fail and sell their bitcoin reserves, Burry said.

Metals would also likely see a catastrophic sell-off, Burry suggested.

"Tokenized metals futures would collapse into a black hole with no buyer. Physical metals may break from the trend on safe haven demand," he added.

Burry, who disappeared from social media before coming back online last year, is known for being a vocal critic of bitcoin and other cryptocurrencies. Previously, he suggested that bitcoin was "not worth anything" and represented the "tulip bulb of our time," comparing the asset's price to the bubble in tulip prices in the 1600s.