Peter Schiff Warns Bitcoin Holders Using Leverage Face Liquidation Risk in Crash

Gold advocate Peter Schiff issued warnings about risks facing Bitcoin holders who have pledged their tokens as collateral for loans. The economist argues that a market crash would force liquidation of these positions at unfavorable prices.

Schiff stated that holders have pledged Bitcoin as collateral to acquire other assets or fund lifestyles without selling their tokens. “In the coming crash, Bitcoin will be liquidated at lower prices, exacerbating the decline,” he wrote. The economist added that many holders won’t realize sufficient cash to cover their tax obligations.

Community questions crash permanence

X user guyincognito challenged Schiff’s thesis by questioning what happens if Bitcoin crashes 60-80% but institutions purchase at the bottom, driving prices higher again. “Do you really think it’ll ever ‘stay dead’?” the user asked.

Schiff responded that regardless of long-term recovery prospects, those who borrowed against Bitcoin will have their holdings liquidated near market lows. The user agreed but expressed confusion about why Michael Saylor would incur leverage and debt risk, creating vulnerability to liquidation. The user suggested Bitcoin will bounce back as corporations bid during declines, stating Wall Street seeks to control the asset.

The economist raised questions about government intervention, wondering if Trump’s cryptocurrency associates could persuade him to fund a Strategic Bitcoin Reserve to finance a bailout. Schiff argued that if government intervention becomes necessary to rescue Bitcoin, it exposes the fallacy behind creating a reserve in the first place.

Schiff projected that losses suffered by Bitcoin holders and crypto investors will be “staggering,” predicting more capital destruction than occurred when the dot-com bubble collapsed. He suggested this could cause broader risk aversion that might trigger collapse of what he characterized as an “even bigger AI bubble.”

Ethereum decline exceeds Bitcoin weakness

The gold advocate noted that Bitcoin finally broke below $100,000 but emphasized that Ethereum is experiencing a larger decline. Ether is approaching $3,000, representing nearly a 40% drop from its record high set in August. Schiff pointed out that Ethereum has already removed all its 2025 gains and predicted Bitcoin will soon surrender its year-to-date appreciation as well.

The warnings focus on leverage as an amplifying factor during potential market declines. Holders who borrowed against their Bitcoin holdings face forced selling if prices drop below certain thresholds. This creates downward pressure that could accelerate beyond what would occur from normal selling.

Related: https://coinedition.com/tom-lee-doubles-down-on-200k-bitcoin-target-by-2025-end/