Catenaa, Wednesday, February 03, 2026- Bitcoin’s sharp decline is raising concern among hedge funds with direct and indirect exposure to crypto markets, as investor Michael Burry warned that further losses could strain leveraged strategies.
Bitcoin fell below $74,000 over the weekend before recovering modestly near $76,400, wiping out gains made since the November 2024 US election. The move followed heavy selling across digital assets and renewed volatility in derivatives markets.
Burry said the breakdown below major price levels risks cascading effects, particularly for hedge funds using Bitcoin-linked instruments or financing structures tied to crypto collateral. Many funds increased exposure through futures, options, lending arrangements, or equity stakes in firms holding large Bitcoin reserves.
Several hedge funds also hold positions in publicly traded companies with sizable Bitcoin treasuries. These firms must mark digital assets to market, which can amplify balance sheet stress during sharp price declines and affect equity valuations.
Burry warned that a further 10% drop could deepen losses for funds exposed to Michael Saylor-led Strategy, one of the largest corporate Bitcoin holders. Such pressure could limit access to fresh capital and force portfolio adjustments among hedge funds seeking to manage drawdowns.
Bitcoin’s weakness has stood out amid broader macro trends. Gold and silver rallied as geopolitical risks increased and the dollar softened, while Bitcoin failed to attract defensive inflows. That divergence has challenged hedge fund assumptions that Bitcoin could hedge currency risk during market stress.
While spot Bitcoin exchange-traded funds and corporate adoption have supported demand, Burry said hedge fund exposure remains vulnerable to rapid shifts in risk appetite. Without a stabilizing use-driven demand base, selling pressure could intensify as funds reduce leverage and rebalance positions.
