Investor Michael Burry has built his reputation by being skeptical of financial assets and products that arouse euphoria and enthusiasm for all.
This translates to questioning and taking a step back when everyone is swooning and swearing over a new fashionable financial asset.
It's not that he's a contrarian, but more the fact that he likes to do his homework and understand the specifics before investing. This approach led him to bet on the collapse of subprime mortgages at the onset of the 2008 financial crisis.
Burry's process was captured in the 2015 film "The Big Short." The movie describes how the investor, who had no particular expertise in finance and real estate, came to understand that the real estate sector had become a sandcastle with financiers and bankers creating exotic financial products based on mortgages granted to financially fragile households and borrowers with poor credit.
He, therefore, decided to bet on the collapse of the subprime market, hence the name "Big Short." History proved him right.
Burry, who now runs hedge fund Scion Asset Management, came out of the crisis like a legend or some kind of anti-hero. He made money when millions of people saw their dreams and their savings disappear, with their homes foreclosed because they couldn't make their monthly payments.
Crypto Downfall
Over time, the financier became something of a Wall Street oracle. He embraced this role judging by his Twitter handle which is Cassandra B.C. For traders and gamblers, he is a kind of party spoiler. Burry doesn't care.
In recent months, Burry warned that the economic situation was going to deteriorate seriously, that massive layoffs of white collar workers were on the horizon; he predicted that the stock market was going to have a moment of truth, after two years of prosperity during the pandemic.
Most of these warnings are coming true. Many tech companies have recently announced thousands of job cuts. The latest company to do so is Mark Zuckerberg's Meta Platforms META, which is to have layoffs for the first time since its founding in 2004. The social media giant will cut 11,000 jobs, or 13% of its workforce.
It is in this context that Burry has just warned against what he considers to be the main problem of the cryptocurrency industry, which wants to disrupt traditional financial services.
Cryptocurrencies have been in a new crisis since Nov. 8, after the extraordinary announcement that the young billionaire Sam Bankman-Fried, who had recently bailed out many crypto firms during the credit crunch in the summer, would sell his empire to his rival Changpeng Zhao, because it was on the verge of insolvency.
No one saw this coming, because Bankman-Fried was seen as the institutional face of the crypto industry, the one pushing for best practices. Learning that his companies -- crypto exchange FTX.com and Alameda Research, a trading platform -- were in serious financial trouble, had investors wondering if there were other skeletons.
These fears have caused a crisis of confidence which has affected cryptocurrency prices. Bitcoin, the most popular digital currency, has lost nearly 17% of its value in the past 24 hours, while shares of Coinbase and Robinhood, two platforms for buying and selling cryptocurrencies, have been in freefall since the revelation of the Bankman-Fried debacle.
FUD Is the Issue
None of this comes as much of a surprise to Burry. He believes that the crypto industry is paying for its rejection of people who even slightly question the viability of projects and products.
He warns that the crypto industry does not support or tolerate contradiction. The only valid arguments are those that tout the industry and predict that cryptocurrency prices will continue to rise, rise, and rise. Basically, it's the attitude that you either are with us or you are being silenced by saying that you are a FUD, an acronym for Fear, Uncertainty and Doubt.
"The very acronym FUD served to minimize the folly in which so many engage," Burry posted on Twitter on Nov. 8. "No matter how logical an argument, if contrary to the bullish narrative, it deserved scorn as FUD. Well. Well. Well."
As often, the investor then deleted the message.
FUD is used by the crypto industry to minimize the craziness of the sector, Burry said.
It is indeed an acronym that is widely used in the crypto space when people share negative information about cryptocurrencies online. The person sharing may be accused of spreading "FUD” or that people selling an asset are doing it out of "FUD".
It is very frowned upon by crypto evangelists who prefer FOMO, which stands for Fear of Missing Out. The latter is a crypto acronym used generally for anxiety of missing out on making money.
