Burry flags potential ‘death spiral’ as silver sees heavier liquidations than bitcoin

Tokenized silver futures emerged as one of the biggest sources of forced selling across crypto markets this week, briefly surpassing bitcoin and ether in liquidation volume.

The crypto-native version of silver swung more violently than bitcoin during the selloff, inflicting heavy losses on leveraged traders. Hedge fund manager Michael Burry, best known for “The Big Short,” described the episode as a feedback loop in which falling prices triggered liquidations that further accelerated the decline.

In a note this week, Burry referred to the move as a “collateral death spiral,” arguing that elevated leverage across crypto exchanges magnified the impact. As the value of crypto collateral fell, traders were forced to liquidate tokenized metals positions to meet margin requirements, intensifying the selloff.

“Sky-high leverage on these crypto exchanges due to rising metals prices meant that as the crypto collateral fell, the tokenized metals had to be sold,” Burry said. “This is a collateral death spiral.”

Burry said silver-related liquidations exceeded bitcoin liquidations on at least one trading venue during the unwind. “It was reported that tokenized silver futures liquidations actually exceeded Bitcoin liquidations on one crypto market called, ironically, Hyperliquid,” he added.

The move was driven less by developments in bitcoin itself and more by positioning in metals markets, where a sharp pullback collided with crowded leverage and limited liquidity. At the peak of the selloff, tokenized silver futures ranked among the largest liquidation events across crypto markets, overtaking the usual leaders bitcoin and ether.

Tokenized metals contracts allow traders to take directional exposure to assets such as gold, silver, and copper through crypto-native platforms rather than traditional futures exchanges. These products trade around the clock and typically require less upfront capital, which can make them attractive during volatile periods. That same structure, however, can accelerate forced selling when positions become crowded.

As metals prices rolled over, leveraged long positions were forced to unwind. Liquidations surged as traders failed to meet margin requirements or had positions automatically closed by trading platforms. On Hyperliquid, one of the most active venues for these contracts, silver-linked liquidations briefly eclipsed those tied to bitcoin—an unusual moment in which a macro-linked contract became the primary driver of market stress.

The episode also coincided with tighter conditions in traditional markets. CME Group raised margin requirements for gold and silver futures, increasing collateral demands and pressuring leveraged traders to either post additional capital or cut exposure. While those changes apply directly to CME contracts, traders say shifts in positioning and risk appetite can quickly spill into tokenized markets that mirror the same underlying assets.

The broader takeaway is that crypto platforms are no longer used solely for crypto trading. They are increasingly functioning as alternative venues for macro exposure—and during periods of stress, that shift can upend liquidation dynamics in unexpected ways.