Crypto Will Cause The Next Trillon Dollar Crash

Last week, I wrote about what I believe is one of the most significant developments in Bitcoin’s history — and possibly one of the most underappreciated risks in modern finance. The Trump administration has now formally approved a framework that allows Bitcoin to be offered as an investment option in select 401(k) retirement plans, while at the same time stablecoins are making up an increasingly larger bid for U.S. Treasuries, both of which are weaving crypto the furthest it’s ever been to the U.S. economy.

That’s not just “more adoption.” It’s the infiltration of Bitcoin into the cornerstone of American personal finance (and the current stock market bid) — retirement accounts. These aren’t speculative trading accounts or offshore exchanges; these are the investment vehicles that millions of Americans rely on for financial security decades into the future — and maybe more importantly, for emergency liquidity in the event of a recession.

In my piece, Is Bitcoin Too Deep in the Fabric of the U.S. Financial System?, I laid out what I think is the core reality: Bitcoin has crossed the moat. It’s no longer trying to get into the castle — it’s inside the walls. And once you start weaving something this volatile into pensions, ETFs, corporate treasuries, and now retirement plans, unwinding it without collateral damage becomes nearly impossible.

The bull case, from my friend James Lavish, is that Bitcoin is a rational hedge against the inevitable debasement of fiat currencies. In this view, its fixed supply, decentralized governance, and incorruptible rules make it the perfect monetary anchor in a system addicted to credit expansion and political interference. The bear case is that by stitching Bitcoin so tightly into our financial infrastructure, we’re effectively creating an Achilles’ heel. If the protocol fails — whether through technical failure, regulatory choke-off, or security breach — it could spark a systemic liquidity crisis. And because Bitcoin is now widely held by institutions, pensions, and retail investors alike, the contagion wouldn’t stay in the crypto corner; it would ripple out into the broader economy. I didn’t tell readers which camp to join, because the truth is, I’m still weighing both sides. But I made one thing clear: there’s no turning back from this level of integration.

Here’s where my personal history comes in. I’ve been saying for years — since before I even owned a single satoshi — that I thought crypto could be the cause of the next major market crash. I’ve called it the “tip of the spear” for risk assets.

Owning Bitcoin hasn’t changed that view. In fact, it’s sharpened it. I’ve repeated many times that, as far as risk assets go, crypto is the biggest.

In my recent conversation with Dan Ferris, I reminded him that certain assets — whether cryptocurrencies or cash-burning, insolvent equities — have no “floor” in a true liquidation event. If there’s no deep value bid, the bottom isn’t $50, or $5 — it’s zero. And in a panic, that’s where things with no intrinsic value, can go.

That’s why today’s numbers are worth paying attention to. The total crypto market cap now stands above $3 trillion. Even if Bitcoin survives a market shock, a 50% drawdown in crypto would erase $1.5 trillion dollars in value instantly.

$1.5 trillion is a serious number. That’s about one-third of the total destruction seen in the entire dot-com bust, when nearly $4.6 trillion in Nasdaq value evaporated between 2000 and 2002, but compressed into a matter of days or weeks (or minutes or seconds) rather than years.

It’s also in the same league as the immediate equity market losses following Lehman Brothers’ collapse in 2008, when U.S. stocks shed roughly $1.5 trillion in a single week, setting off a global financial panic that ultimately erased $8 trillion in U.S. market cap.

Unlike past episodes, though, today’s crypto losses would directly hit 401(k)s, ETFs, corporate balance sheets, and even Treasury demand via stablecoins — giving them systemic reach that combines the market integration of 2008 with the speculative froth of 2000. In other words, the numbers are large enough, and the wiring is deep enough, for a crypto crash to be more than just a “tech sector” wipeout — it could plausibly be the spark for the next broad-market crisis.

For meme tokens, zombie projects, and coins like Fartcoin, the endgame isn’t “maybe” zero — it’s eventually zero. The only question is timing. And remember, this doesn’t account for the market cap of public companies now holding crypto on their balance sheets, adding second-order exposure risk to equities and indexes.

Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, echoed similar concerns in his recent interview with Palisades Gold Radio.

“The most significant systemic risk I think in the system I’ve ever seen [is] one simple little market — and that’s Bitcoin… I think the risk is it goes down and takes the system with it.”

McGlone’s broader point was that the U.S. stock market is “so elevated” that the Fed’s room to ease is limited until we see a meaningful correction. That means the setup for risk assets is skewed toward reversion — and Bitcoin, he argues, could lead the way down. He went further:

“People are so addicted to [the idea that] the stock market just goes up… there’s only a few times in history you hear statements like that, and every time I’ve heard things like that… it usually means you should be worried about what happens in normal capitalist cycles.”

In other words, when you hear “it’s different this time,” history is whispering back: No, it isn’t. McGlone also made an important observation about market psychology:

“When you have an asset like Bitcoin that’s endorsed by a president, virtually everybody in the administration owns it and loves it, and everybody is starting to buy it — you have to say thank you very much. If you’ve made some money in it, probably better not to join the party here.”

That’s classic late-cycle behavior — mass enthusiasm, political endorsement, and the belief that volatility has been tamed. Bitcoin’s annual volatility relative to gold is now the lowest in history. That’s a sign of “adulting,” as McGlone put it — but also a warning that the outsized returns are gone, leaving more downside risk than upside asymmetry.

This is why my conclusion doesn’t depend on whether I’m bullish or bearish on bitcoin at the moment. I own it and will continue to buy on a recurring basis no matter what the price. But it doesn’t change the fact that the objective truth is this: the more deeply crypto is integrated into the plumbing of the global financial system, the more likely it is to serve as the fault line in the next crisis.

We’ve seen this pattern before — in housing before 2008, in dot-com equities before 2000, in leveraged buyouts before 1987. The common thread is that the trigger isn’t just a speculative bubble — it’s a bubble that’s been wired into the system so tightly that when it pops, the shock spreads everywhere.

Right now, that’s exactly what’s happening with crypto. And now, with 401(k)s officially in the mix, the exposure is deeper than ever.

Whether Bitcoin eventually fulfills its promise as digital gold or not, the near-term reality is that it’s a risk asset with no guaranteed floor. And when risk assets unwind at scale, they don’t just hurt the gamblers — they hit pensions, portfolios, and the broader economy.

I’ve been saying for years that crypto could be the trigger for the next crash. Nothing I’ve seen lately changes that view. If anything, the case is stronger as crypto gets bigger. In fact, when you look back at the great market dislocations of the last half-century, the trigger asset always shares three characteristics:

A massive run-up fueled by speculative fervor Widespread integration into the financial system — directly or indirectly The belief that “it’s different this time” Once those conditions are met, the only missing ingredient is a catalyst — and history has no shortage of them.

The ‘87 crash is often remembered for portfolio insurance gone wrong, but the backdrop was a leveraged buyout boom that had inflated valuations and drawn in speculative capital. Once selling began, the structures meant to “protect” investors actually amplified the fall.

Parallel to crypto today: The LBO craze had bled into mutual funds, pension strategies, and corporate finance just as crypto is now bleeding into ETFs, public company treasuries, and retirement accounts.

By the late 1990s, tech stocks weren’t just a sector — they were the market story. The Nasdaq tripled in under two years. Pets.com wasn’t just a stock, it was an emblem of the era’s blind optimism. The prevailing narrative was that internet-based companies could only go up because the technology was world-changing.

Parallel to crypto today: Blockchain and digital assets are touted as transformative — and they may well be — but that doesn’t mean every project deserves its valuation. Just as in 2000, the good ideas and the bad are all rising together. And in 2000, when the tide went out, the bad ideas went to zero, and even the Amazons of the world lost 90% before recovering.

This one’s the clearest parallel in terms of systemic wiring. Housing wasn’t just an asset class in 2008 — it was tied into mortgage-backed securities, bank balance sheets, money market funds, and credit default swaps. When the value of the underlying asset dropped, the shockwave traveled through the entire global financial system.

Parallel to crypto today: With Bitcoin now sitting in retirement portfolios, ETFs, and corporate balance sheets, a major crypto drawdown would instantly show up in equity prices, index funds, and even in pension fund returns. The wiring is there.

Initial Shock – A sharp price drop in Bitcoin (whether from macro tightening, a major hack, or a sudden shift in sentiment) triggers panic selling across the crypto market. Contagion to Equities – Public companies with large Bitcoin positions see their stock prices hit. ETFs tracking Bitcoin or blockchain sectors bleed. Leveraged crypto companies start defaulting. Liquidity Drain – Investors sell other risk assets to meet margin calls or offset losses, pulling down stocks more broadly. Pension and Retirement Account Impact – Funds with crypto exposure, even a small percentage, see performance drag, hitting retirement account values. Confidence Crisis – If the drawdown is steep enough, especially in an environment of high valuations and macro stress, investor psychology shifts from “buy the dip” to “get me out.” The Post-Crash Landscape

History also tells us what comes next. After the dot-com crash, the internet didn’t go away — it matured. After 2008, housing didn’t disappear — lending standards changed.

Survivors and consolidation – The large, most-established projects (like Bitcoin and Ethereum) likely survive, but thousands of smaller coins go to zero. Regulatory overhaul – Just as Sarbanes-Oxley followed Enron, and Dodd-Frank followed the GFC, a major crypto crash would invite sweeping regulation, likely restricting speculative activity and mandating custody and reporting standards. Lower but steadier growth – Volatility drops, but so do the life-changing gains. Bitcoin could settle into its role as a slower-moving “digital gold” if it survives. Public skepticism – Retail enthusiasm takes years to recover. Early adopters will tell “I told you so” stories, and mainstream investors will tread cautiously. Is This Time Different?

“We’ve lifted things so high that every time we have a problem, the Fed’s supposed to save us — and they will. But I think what we’re going to start now is a cat-and-mouse game between normalization of very expensive equities… and the most significant systemic risk I’ve ever seen — Bitcoin.”

We’ve seen the movie before — the faces and the asset names change, but the arc is the same. The excess builds, the wiring spreads, the confidence grows — and then the catalyst arrives.

For quite a while the stock market was in the news every day.

Then lottery tickets were in the news everyday.

Now is is bitcoin everyday.

When was the last time you heard any news about lottery tickets? Bit coin in the new lottery ticket.

The very fact that it is now in retirement accounts and has been accepted by Wall Street will reduce its volatility. Volatility is not an inherent and intractable feature of bitcoin. It is simply a reflection of the uncertainty regarding its future. Every positive headline feeds the idea that it will take over the world. And every negative headline feeds the idea it will die out. But every advance into a new market, every law passed reducing uncertainty and establishing regulatory confidence, creates clarity. So the author is basically getting it backwards. A steep decline now is a buying opportunity, and an overexuberant spike a selling opportunity, amidst the backdrop of steady progress in institutional acceptance. The result will be diminished volatility.

Debt-laden mortgages bundled and sold as assets in the 2000s, dot.com IPOs created out of thin air leading to boom and bust in the’90s, this is more ‘creative financing’, FIAT currency again, phony wealth created out of nothing.

This will fail, too, and when it does it will be the biggest crash in a generation, with the potential to dwarf October of 1929.

Like musical chairs, you won’t want to be the one holding the bag of sh#t when the music stops.

Now, I wish I had the level of investment skill to avoid the crash, but I’ve always viewed crypto-coin as a scam. People are buying digital digits with hard cash. Those who create digital currency is exchanging computer digits for cash.

How does the following play into the author's concerns?

As of August 12, 2025, the total market capitalization of all cryptocurrencies is approximately $3.4 trillion, while the global stock market capitalization is around $126.7 trillion, and the global bond market is valued at approximately $145.1 trillion

I have a theory ... my theory is that Bitcoin was a vehicle devised to enable wealth to flee China. Once all the flee-ing dries up, the utility drops and the price falls dramatically for the long term.

This would explain why so many companies in China are behind on payroll. That payroll got put in the blockchain and is probably being used to buy mansions in Canada, farms in the US, etc.

But, that's just my theory. If my theory is correct, there are going to be a LOT of wealthy Chinese around.

A trillion here, a trillion there, pretty soon, you’re talking real money.

But really, a trillion is hardly a dent in today’s economy.

Crypto is just this century’s Dutch tulip craze. Bitcoin is fiat backed by nothing but bs. Give me gold, property or other hard assets. I suspect Bitcoin will continue to rise as more move into it but it will eventually dump at some point maybe for good.

Dutch tulips.

Dutch tulips may be a good example of a crypto crash hurting primarily crypto investors but not the broader market.

Tulip mania, a period during the Dutch Golden Age when the contract prices for tulip bulbs reached extraordinarily high levels. After their value crashed in February 1637, it did not significantly impact the broader Dutch economy. The broader Dutch economy continued to thrive after the tulip market's collapse. The nation's dominance in global commerce, finance, and manufacturing remained unchallenged for another century.

- Source Wikipedia

Give me gold, property or other hard assets.

Have you considered company ownership (stocks) or bonds (money lender)?

Government never banned Tulips, internet stocks, real-estate, color television stocks, LBO’s.
They were all in retirement portfolios except tulips.

Parabolic rises are common in all bubbles. Eventually every one has crashed. No exceptions!

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