Blue Owl Capital’s (OWL) announcement this week that it would sell $1.4 billion in loans to boost liquidity for investors in a retail-focused private credit fund has set off alarm bells in financial markets, with more than one prominent analyst drawing direct parallels to two Bear Stearns hedge fund collapses that foreshadowed the 2008 financial crisis, and for bitcoin. investors, the implications could be profound.
While there was no damage to the major stock market averages, Blue Owl shares fell about 14% for the week and are now down more than 50% year over year. Other major private equity players, including Blackstone (BX), Apollo Global (APO), and Ares Management (ARES), also suffered significant declines.
It stirred up some painful memories for those who suffered from the 2008 global financial crisis (GFC).
In August 2007, two Bear Stearns hedge funds collapsed after suffering large losses in subprime mortgage-backed securities, while BNP Paribas froze withdrawals at three funds, citing an inability to value U.S. mortgage assets. Credit markets ground to a halt, liquidity evaporated, and what seemed like an isolated incident led to a global financial crisis.
“Is this a ‘canary in the coal mine’ moment, similar to August 2007?” asked former Pimco chief Mohamed El-Erian. “There is a lot to think about here, starting with the risks of an investment phenomenon in [artificial intelligence] markets that has gone too far,” he continued. El-Erian was quick to point out that while the risks could be systemic, they do not appear to approach the magnitude of the 2008 crisis.
The Blue Owl issue may or may not be another Bear Stearns moment, but if it is, what could that mean for bitcoin?
First, private credit stress does not automatically mean a bitcoin rally. In fact, in the short term, tighter credit conditions can hurt risk assets, including bitcoin and the broader crypto market. While bitcoin did not exist during the 2008 crisis (more on this later), the price action as the Covid crisis unfolded (roughly a 70% drop from mid-February 2020 to mid-March) is illuminating.
However, the eventual response from the US government’s Federal Reserve could be powerfully bullish for bitcoin. In 2020, trillions of dollars were pumped into the economy, helping BTC rise from a low of less than $4,000 to over $65,000 about a year later.
The 2007-2008 playbook followed a similar trajectory: initial credit market stress, stock market denial, banking sector contagion, and then massive central bank intervention. If Blue Owl represents the “first domino” – as former Peter Lynch associate George Noble suggested – the sequence could repeat itself with private credit replacing subprime mortgages as the trigger.
“The Chancellor on the brink of a second bailout for the banks”
One of the main results of the 2008 event was the creation of Bitcoin.
The world’s original cryptocurrency. was born during the global financial crisis, in part because its mysterious creator (or creators), Satoshi Nakamoto, was disillusioned with governments and central banks that conjured up hundreds of billions, if not trillions, of dollars with little more than a few keystrokes on a computer.
Another important part of the world’s largest digital asset was the creation of a parallel digital currency that would allow direct peer-to-peer online payments without the need for a financial institution or any government intervention. Essentially, the hope was to create a direct alternative to a legacy banking system that had just proven fragile enough to bring down the global financial order through the meddling of centralized entities.
In fact, the first Bitcoin block, the so-called Genesis Block on January 3, 2009, was embedded by Satoshi with “Chancellor on verge of second bailout for banks.” That was the headline in the Times of London that day as the UK government and the Bank of England designed a response to the current problems in that country’s financial sector.
Valued essentially zero that day and unknown to all but a small handful of “cypherpunks,” bitcoin, 17 years later, has a market capitalization exceeding $1 trillion and is considered a near-essential asset for most portfolios by the largest asset managers on the planet.
Bitcoin as we know it now, of course, is different from the original cryptocurrency of 2009. Today, the notion of “store of value” and “digital gold” has come and gone. What was supposed to be anti-establishment has become part of the broader financial system. Large holders are accumulating huge amounts of bitcoin on their balance sheets, financial giants are offering bitcoin to the masses through exchange-traded funds, and even some government entities are buying for their strategic reserves.
So does Blue Owl’s failure mean another resurgence of the original Bitcoin thesis and, in turn, another bull run? Time will tell, but if this event turns out to be El-Erian’s “canary,” signaling another sizable crisis, the global financial system could be in for a rude awakening, and Bitcoin could become the solution, whatever form it may have taken 17 years later.
Read More: Bitcoin Crash Signals Coming AI Crisis, But Massive Federal Reserve Response Will Drive New Record – Arthur Hayes
