Hedge fund manager Michael Burry, known for “The Big Short,” said recent selling in tokenized silver showed signs of a “collateral death spiral”. On at least one crypto venue, liquidations tied to silver briefly ran above bitcoin, an unusual shift in a market where BTC usually dominates forced selling.
In a note this week, Burry described a feedback loop driven by falling prices and heavy leverage across digital assets and tokenized metals. His point was simple: rising metals prices had encouraged very high leverage on crypto exchanges, and once crypto collateral started to lose value, traders were forced to dump tokenized metals positions. That selling pushed prices lower and triggered more liquidations.
Silver briefly became the main source of forced selling
Burry said reports showed tokenized silver futures liquidations exceeded bitcoin liquidations on Hyperliquid, a crypto market active in these products. The reversal was not mainly about a bitcoin-specific catalyst. It was tied more closely to fast changes in metals positioning, where a sharp pullback hit crowded leveraged trades in a market with thinner liquidity.
At the peak of the move, tokenized silver futures recorded one of the biggest wipeouts across crypto markets, overtaking the contracts that usually lead liquidation tables, including bitcoin and ether. For a brief period, the main driver of automatic position closures was not BTC but a macro-linked contract.
Why tokenized metals can intensify a selloff
Tokenized metals contracts allow traders to take directional exposure to gold, silver and copper through crypto-native platforms rather than traditional futures accounts. These instruments trade around the clock and often require less upfront capital. That structure can look efficient in volatile conditions. It can also speed up forced selling when a crowded trade moves the wrong way.
As metals rolled over, leveraged longs had to unwind. Liquidations climbed as some traders failed to meet margin requirements while others had positions closed automatically by trading platforms. At the same time, risk conditions were tightening in traditional markets. CME Group raised margin requirements for gold and silver futures, increasing collateral demands and pushing leveraged traders to add capital or cut exposure.
Those CME changes apply to exchange-listed futures, but traders say shifts in positioning and risk appetite can spill quickly into tokenized markets tracking the same underlying assets. The episode points to a broader change: crypto venues are no longer used only for crypto trades, and stress in macro-linked products can reshape liquidation flows in ways many traders do not expect.