Author of "The Big Short" Michael Burry warns that the Federal Reserve's $40 billion bond-buying plan could exacerbate financial fragility; Bitcoin faces a downside risk

Author of “The Big Short” and renowned investor Michael Burry recently issued a strong warning regarding the Federal Reserve’s plan to purchase $40 billion in Treasury bills (T-bills) within a month. He believes that this move exposes the structural fragility of the U.S. banking system rather than stability as perceived by the outside world. At the same time, this policy direction could create new downside pressure on Bitcoin (BTC) and the broader cryptocurrency market.

Federal Reserve Chairman Powell stated that this debt purchase is a “reserve management operation” and not quantitative easing (QE). However, Burry pointed out that the Fed has continued to expand its balance sheet when the banking system is under pressure, indicating that the market still relies heavily on liquidity support. He emphasized that bank reserves have now exceeded $3 trillion, far above the $2.2 trillion level before the regional banking crisis of 2023. He warned that if the banking system must rely on such a liquidity “lifeline,” it is not strong but fragile.

Burry further noted that after the end of quantitative tightening (QT), the Fed once again injected liquidity into the market through repurchase agreements (repos), causing a short-term rebound in crypto assets, but this is not a healthy recovery. He advised the market to be cautious about recent Wall Street recommendations for bank stocks and personally prefers to allocate funds exceeding FDIC insurance limits into Treasury money market funds (TMF).

Meanwhile, the U.S. Treasury is increasing short-term Treasury issuance, while the Fed is purchasing these short-term bonds to prevent the 10-year Treasury yield from rising. Market analysts believe that the current volatility in the repurchase market may pressure the Fed to adopt more aggressive liquidity measures by the end of the year.

In the face of weakening macro sentiment, the crypto market is also under pressure. Bitcoin dropped over 2% within 24 hours before options expiration, with a low of $89,459, and is currently hovering around $90,000. Analysts warn that Bitcoin has failed to regain the $93,000 to $94,000 range and may further decline to the $85,000 support level in the short term. On-chain data shows rising miner sell pressure, including Marathon Digital selling a large amount of 275 BTC valued at over $25.3 million, which has intensified market bearish sentiment.

Overall, changes in macro liquidity and signals of banking system risk are reshaping market expectations. Burry’s warning highlights potential financial vulnerabilities, and Bitcoin’s short-term trend still appears to face pressure.