Michael Burry, an investor most known for his depiction in The Big Short, is speaking out against crypto audits—calling them meaningless.
Key Details
- Michael Burry is the founder of the hedge fund Scion Capital and is famous for shorting the market before the 2008 financial crisis. Christian Bale depicts him in the film The Big Short.
- He runs a Twitter account where he shares music and cryptic investing advice. On Friday, he tweeted that crypto audits are meaningless.
- “This is the problem. In 2005 when I started using a new kind of credit default swap, our auditors were learning on the job. That’s not a good thing. Same goes for FTX, Binance, etc. The audit is essentially meaningless,” says Burry.
Why it’s Important
With crypto becoming a more popular and acceptable form of a financial asset, it will naturally fall into the same rules, regulations, and scrutiny that all financial assets fall under.
Organizations are made to keep strict records of transactions for this purpose so that they can be kept accountable and reviewed internally or externally after the fact.
Crypto as an asset is anonymized and many of the firms controlling it have proven to be unreliable with accountability and management. Trying to audit it may be momentarily pointless.
Burry was one of the few people to foresee what would become the 2008 financial crisis and managed to hedge his bets appropriately against it. If he is speaking out against something, his warning is worth a close read.
Crypto is a challenging industry, with alot of minutiae and jargon making it challenging to navigate. It is even difficult for experts, who Burry claims are having to learn how to do largescale audits as they learn about the functions of crypto.
“His latest tweet references the complex instruments that helped bring about the financial crisis in 2008, as officials and the financial realm at large didn’t fully understand the risks,” says Bloomberg.
Following the collapse of FTX in early November, the entire cryptocurrency economy has suffered. The value of major coins dropped overnight, contributing to the ongoing chilling of the market known as “The Crypto Winter.” This came in addition to the overall cooling of the market from its peak in November 2021. This year alone has already seen the collapse of BlockFi, Luna, Terra, Celsius, Voyager, and Three Arrows Capitol.
The collapse of FTX has only intensified things. Binance, the largest crypto firm in the world, is struggling to cool investor fears of insolvency. Major governments including the U.S. are pushing bipartisan legislation to crack down on the crypto market.
If Burry’s prediction holds water though, it is possible that crypto audits aren’t going to be a functional means to regulation for the near future as auditors struggle to get a grasp on the industry. Meaningful crypto audits are only going to work if the companies are forthcoming and not mired in mismanagement.
“The founder of Scion Asset Management referenced a Bloomberg article stating that the accounting firm used by Binance is halting all work for crypto clients, a blow to the credibility of an industry already reeling from FTX’s collapse last month,” says Bloomberg.