The tokenized version of money has spread more wildly than bitcoin, leading to significant losses for holders. Hedge fund manager Michael Burry, known for “The Big Short,” sees this as a vicious loop in which falling prices force liquidations, making it even worse.
Burry highlighted the same dynamic in a note this week, calling it a “collateral death spiral” in which falling crypto prices and heavy leverage have triggered liquidations in tokenized metals and digital assets.
Burry said silver liquidations surpassed bitcoin on at least one crypto site during the selloff.
“The extremely high leverage on these crypto exchanges due to rising metal prices meant that as crypto collateral fell, the tokenized metals had to be sold,” he said. “It’s a collateral death spiral.”
“It has been reported that liquidations of tokenized silver futures actually exceeded liquidations of Bitcoin in a crypto market called, ironically, Hyperliquid,” Burry added.
This reversal was less due to anything specific to Bitcoin and more to rapid positioning in metals, where a sharp pullback was met with excessive leverage and limited liquidity.
At the height of the move, tokenized silver futures saw one of the biggest wipeouts in crypto markets, overtaking usual leaders Bitcoin and Ether.
Tokenized metals contracts allow traders to make directional bets on gold, silver and copper using crypto-native platforms rather than traditional futures accounts.
These products trade 24 hours a day and often require less initial capital, which can make them attractive in volatile conditions. But this same setup can accelerate forced sales when prices move against a crowded trade.
As metals reversed course, leveraged long positions were forced to unwind. Liquidations increased as traders failed to meet margin requirements or had their positions automatically closed by the platforms.
On Hyperliquid, one of the most active sites for these instruments, silver-related liquidations briefly surpassed those of bitcoin – a rare moment when a macro contract, not BTC, became the primary driver of forced selling.
The move also comes as traditional markets tighten their risk parameters.
CME Group increased margin requirements for gold and silver futures, increasing collateral demands and putting pressure on leveraged traders to add capital or reduce exposure.
While these margin changes apply to CME contracts, traders say changes in positioning and risk appetite can quickly ripple across tokenized markets that reflect the same underlying assets.
The broader takeaway is that crypto sites are no longer used just for crypto. They are increasingly becoming alternative avenues for macroeconomic trading – and when stressed, this can reverse the liquidation situation in ways traders would not expect.
