Blue Owl Capital’s (OWL) announcement this week that it would sell $1.4 billion in loans to raise liquidity for investors in a retail-focused private credit fund set off alarm bells in financial markets, with more than one prominent analyst drawing direct parallels to two Bear Stearns hedge fund collapses that foreshadowed the 2008 financial crisis — and for Bitcoin. investors, the implications could be profound.
While there was no damage to major stock market averages, Blue Owl shares fell about 14% for the week and are now down more than 50% year over year. Other major private equity players, including Blackstone (BX), Apollo Global (APO), and Ares Management (ARES), also suffered significant declines.
It brought back painful memories for those who suffered from the 2008 global financial crisis (GFC).
In August 2007, two Bear Stearns hedge funds collapsed after suffering heavy losses on subprime mortgage-backed securities, while BNP Paribas froze withdrawals from three funds, citing its inability to value U.S. mortgage assets. Credit markets seized up, liquidity evaporated, and what seemed like an isolated incident escalated into a global financial crisis.
“Is this a ‘canary in the coal mine’ moment, similar to August 2007,” asked former Pimco boss Mohamed El-Erian. “There are many reasons to think about this, starting with the risks of an investment phenomenon in [artificial intelligence] “The markets have gone too far,” he continued. El-Erian was quick to point out that while the risks could be systemic, they do not appear to be on the scale of the 2008 crisis.
The Blue Owl problem may or may not be another Bear Stearns moment, but if so, what could it mean for Bitcoin?
First, tensions on private credit do not automatically mean a recovery in bitcoin. In fact, in the short term, tighter credit conditions may harm risky assets, including Bitcoin and the broader crypto market. Even though Bitcoin wasn’t present during the 2008 crash (more on that later), the price action as the Covid crisis unfolded – a drop of around 70% between mid-February 2020 and mid-March – is illuminating.
The eventual response from the US Federal Reserve, however, could be extremely bullish for bitcoin. In 2020, billions of dollars were injected into the economy, helping push BTC from a low of less than $4,000 to over $65,000 about a year later.
The 2007-2008 scenario followed a similar trajectory: initial tensions in the credit market, denial in the stock market, contagion in the banking sector, then massive intervention by central banks. If Blue Owl represents the “first domino” – as George Noble, a former associate of Peter Lynch, has suggested – the sequence could repeat itself with private credit replacing subprime mortgages as the trigger.
“Chancellor poised for second bank bailout”
One of the main outcomes of the 2008 event was the creation of Bitcoin.
The world’s original cryptocurrency was born during the global financial crisis, in part because its mysterious creator(s), Satoshi Nakamoto, was disappointed that governments and central banks were conjuring up hundreds of billions, even trillions, of dollars with a few keystrokes on a computer.
Another major component of the world’s largest digital asset was creating a parallel digital currency that would enable direct peer-to-peer online payments without the need for a financial institution or any government intervention. Essentially, the hope was to create a direct alternative to a traditional banking system that had just proven fragile enough to bring down the global financial order through the interference of centralized entities.
In fact, the very first block of Bitcoin, called the Genesis Block on January 3, 2009, was integrated by Satoshi with “the chancellor about to carry out a second bank bailout.” That was the headline in The Times of London that day as the British government and the Bank of England crafted a response to continuing turmoil in that country’s financial sector.
Virtually worthless that day and unknown to all but a small handful of “cypherpunks,” bitcoin, 17 years later, has a market capitalization exceeding $1 trillion and the largest asset managers on the planet call it a near-essential asset to own for most portfolios.
Of course, Bitcoin as we know it today is different from the original cryptocurrency of 2009. Today, the notions of “store of value” and “digital gold” have disappeared. What was supposed to be anti-establishment has become part of the larger financial system. Large holders are accumulating massive amounts of bitcoin on their balance sheets, financial giants are offering bitcoin to the general public through exchange-traded funds, and even some government entities are purchasing it for their strategic reserves.
So, does Blue Owl’s failure mean another resurgence of Bitcoin’s original thesis and, therefore, another bull run? Time will tell, but if this event proves to be El-Erian’s “canary”, signaling another full-blown crisis, the global financial system could be in for a rude awakening, and Bitcoin could well become the solution, whatever form it takes 17 years later.
Read more: Bitcoin Fall Signals Looming AI Crisis, But Massive Fed Response Will Lead to New Record: Arthur Hayes
