Blue Owl Capital’s recent announcement of its plan to sell $1.4 billion in loans to enhance liquidity for investors in a retail-focused private credit fund has raised concerns in financial markets. Analysts have drawn comparisons to two Bear Stearns hedge fund failures that preceded the 2008 financial crisis. This situation could have significant implications for bitcoin and its investors.
While major stock market indices remained stable, Blue Owl’s shares plummeted nearly 14% over the week, resulting in a year-over-year decline of over 50%. Other key private equity firms like Blackstone, Apollo Global, and Ares Management faced substantial drops as well.
The announcement has evoked unsettling memories for those who experienced the 2008 global financial crisis. In August 2007, two Bear Stearns hedge funds collapsed due to substantial losses related to subprime mortgage-backed securities, while BNP Paribas suspended withdrawals in three funds, citing difficulties in valuing U.S. mortgage assets. This led to a credit market freeze, and what began as a singular event escalated into a worldwide financial crisis.
“Is this a ‘canary-in-the-coalmine’ moment, akin to August 2007?” inquired former Pimco head Mohamed El-Erian. He noted that while the risks could be systemic, they do not currently appear to be on the same scale as the 2008 crisis. El-Erian also highlighted concerns related to the current investing phenomenon in artificial intelligence markets.
While private credit stress does not guarantee a rally for bitcoin, it can lead to tighter credit conditions that negatively impact risk assets, including bitcoin and the broader cryptocurrency market. Though bitcoin did not exist during the 2008 crisis, its performance during the Covid pandemic—where it saw a steep decline of about 70% from February to March 2020—offers some insights.
The Federal Reserve’s eventual response to economic stress could be bullish for bitcoin. In 2020, substantial monetary injections into the economy facilitated bitcoin’s rise from under $4,000 to over $65,000 within a year. Historically, the timeline from credit market stress to significant central bank intervention mirrored that of the 2007-2008 crisis; if Blue Owl serves as the “first domino,” private credit could act as today’s trigger, replacing subprime mortgages.
“Chancellor on brink of second bailout for banks”
The 2008 crisis also led to the creation of Bitcoin. Its mysterious creator, Satoshi Nakamoto, was motivated by disillusionment with central banks’ aptness to print vast amounts of money with minimal effort. Bitcoin was envisioned as a decentralized currency that could facilitate peer-to-peer transactions without relying on established financial institutions.
Notably, Bitcoin’s Genesis Block, created on January 3, 2009, included the phrase “Chancellor on brink of second bailout for banks,” referencing a prominent headline about the British government’s actions during the financial troubles. Initially worth nearly nothing, bitcoin has since surged to a market cap exceeding $1 trillion, becoming a perceived necessity for many investment portfolios.
Today, the landscape of bitcoin differs from its original conception in 2009. It has shifted from being anti-establishment to becoming integrated within the larger financial ecosystem. Major holders are keeping significant amounts of bitcoin, and financial institutions are facilitating broader access through exchange-traded funds.
So, does Blue Owl’s predicament hint at a revival of Bitcoin’s founding principles and trigger another bull run? Only time will tell. If this situation unfolds as El-Erian suggests, indicating a potential crisis, the global financial system may face significant challenges, with bitcoin potentially emerging as a viable solution, regardless of its evolved state over the past 17 years.
