On 8 October 2024, famed global macro hedge fund manager Hugh Hendry posted a thought-provoking message on the social media platform X, discussing Bitcoin’s place in the broader financial landscape and warning of potential dangers in traditional financial markets. Hendry’s commentary compared Bitcoin’s market capitalization to that of major tech stocks, highlighting the potential instability in financial markets tied to those assets.
Hendry opened by calling Bitcoin “everyone’s phantom, good or bad,” suggesting that while Bitcoin is often a topic of debate, its overall impact on the current financial conversation is relatively small due to its size. He explained that Bitcoin’s total market capitalization, standing at around $1 trillion, is dwarfed by the $42 trillion valuation of tech-heavy indices like the Nasdaq 100 (represented by QQQ). He said that this vast discrepancy in size means that Bitcoin doesn’t hold significant sway in current financial market dynamics, but it does possess a unique attraction for potential upside growth due to its smaller relative size.
In Hendry’s analogy, he likened Bitcoin’s role in financial markets to Newton’s Cradle, where mass is a crucial factor in determining how forces move through the system. In this case, traditional large-cap tech stocks—such as those in the so-called “Mag-7,” worth about $13 trillion—are the key players in today’s financial landscape. These stocks carry tremendous influence due to their size, making them the focal point of Hendry’s concern. He warned that if these tech stocks falter, the implications could be disastrous for the broader market, leading to margin calls and a cascade of financial disruptions.
A major part of Hendry’s caution stemmed from his discussion of “moneyness,” or how close an asset’s value is to the perceived safety of a U.S. Treasury bill (T-bill). In his view, tech stocks, despite their current valuations, are far more volatile than T-bills and could lose significant value in a relatively short time frame. He noted that T-bills are highly stable and are not subject to drastic devaluations—unlike stocks, which have, in the past, lost as much as 83% of their value in an 18-month period.
Hendry’s concern focused on the use of these overvalued tech stocks as collateral for loans. He warned that banks may need to reevaluate the true worth of this collateral in the event of a downturn. He believes that if these stocks lose value, the credit market could unravel, causing massive margin calls and liquidity issues throughout the financial system. In response to this risk, Hendry suggested that banks should reduce their exposure to these assets as a protective measure, though this would be challenging due to the market’s dependence on liquidity.
Finally, Hendry hinted that he and financial analyst David Levenson are closely monitoring the growth and deceleration of these major assets. He concluded with a sobering thought: if these financial “beasts” cannot grow, they will eventually collapse.
