Thomas Peterffy, founder and chairman of Interactive Brokers, known as the 'father of high-frequency trading,' believes that a potential Bitcoin crash is one of the biggest risks that could lead to a decline in the stock market in 2025.
In an interview with Bloomberg last week, Peterffy explained why he is worried that US stocks may decline in 2025.
The issue Peterffy sees is the high leverage levels throughout the system. He said, 'The risk of an economic downturn is very high because margin balances are growing very, very quickly,' and one area where margin risk has increased significantly is Bitcoin, thanks to the low fees charged by the Chicago Mercantile Exchange (CME) for Bitcoin futures.
Peterffy said, 'I am very concerned that people are overextending their financial capabilities.'
Margin allows investors to borrow a certain amount of debt based on the value of their investment account and use the funds to purchase more assets. While this strategy can enhance returns when the market is rising, it can unravel if a market correction causes the value of an investor's account to fall below a certain threshold, which would force them to liquidate at lower prices, often resulting in losses, or inject new cash into the account to meet the broker's mandated margin threshold.
According to YCharts data, the Financial Industry Regulatory Authority (FINRA) margin debt reached its highest level since February 2022 in October, at approximately $815 billion. Meanwhile, MicroStrategy recently raised billions through debt to increase its Bitcoin reserves.
If Bitcoin suddenly drops sharply, investors may be forced to sell assets to meet margin calls, thereby putting further pressure on prices.
Peterffy warned, 'Assuming Bitcoin crashes 30%, 40%, or 50% in a day, there will be many bankruptcy cases, and clearinghouses will not be able to clean up the mess.'
When directly asked about his views on Bitcoin, Peterffy admitted that he feels 'fear' about it, adding that 'Bitcoin can go to any price because it is essentially just an imaginary thing; it has no intrinsic value.'
Peterffy pointed out that to limit its company's risk in the potential collapse of cryptocurrencies, Interactive Brokers restricts its clients from directly investing more than 10% of their assets in Bitcoin, as he believes 'this would be very dangerous.'
Interactive Brokers stated, 'To ensure that cryptocurrencies remain a complement to our core business, we will limit customers from establishing cryptocurrency positions above a certain threshold through any cryptocurrency service provider linked to ibkr.'
Despite Peterffy's concerns about cryptocurrencies, Bitcoin has been surging, hitting a record high above $107,000 on Monday.
Peterffy is not the only one who is cautious about the world's largest cryptocurrency. BCA Research strategist Peter Berezin believes that Bitcoin is merely a leveraged bet on tech stocks and warns investors that by 2025, Bitcoin could plummet 57%, falling to $45,000.
Article forwarded from: Jin Shi Data
