- A bitcoin crash could trigger a broader stock market decline, Interactive Brokers' Thomas Peterffy says.
- Rising leverage in bitcoin futures poses significant risks to broader assets, Peterffy said.
- "It's basically just a figment of the imagination, so it doesn't have any underlying value," Peterffy said of the crypto.
Interactive Brokers chairman Thomas Peterffy sees a bitcoin crash as one of the biggest risks that could lead to a stock market decline in 2025.
In an interview with Bloomberg last week, Peterffy explained why he is concerned that the stock market could decline in 2025.
The problem Petterffy sees is the high levels of leverage coursing through the system.
"A downturn is a very big risk because margin balances have been growing very, very quickly," Peterffy said.
According to Peterffy, one area that has seen a big spike in margin-based risk-taking is bitcoin, which benefits from low fees on bitcoin futures charged by the CME.
"I am very worried that people overextended themselves," Peterffy said.
Margin allows investors to take on a certain amount of debt based on the value of their investment account, and use the proceeds to buy more assets.
While the strategy can juice returns while the market is rising, a correction could unravel the margin debt strategy if an investor's account falls below a certain threshold. This would force them to exit their positions at a lower price and likely at a loss or add new cash to the account to meet the margin threshold imposed by the brokerage firm.
FINRA margin debt hit its highest level since February 2022 in October, at about $815 billion, according to YCharts data. Meanwhile, MicroStrategy has recently raised billions of dollars in debt to add to its bitcoin stash.
But if bitcoin saw a sudden and sharp decline, it could unravel the margin debt as investors could be forced to sell their assets to meet margin calls, putting further pressure on prices.
"Bitcoin falls say 30, 40, 50% from one day to the next. There would be many bankruptcies, the clearing houses would be unable to pick up the pieces," Peterffy warned.
When asked directly about his views on bitcoin, Peterffy admitted he was "scared" by it, adding, "they can go to any price because it's basically just a figment of the imagination, so it doesn't have any underlying value."
To limit his firm's exposure to a potential meltdown in cryptocurrencies, Peterffy noted that Interactive Brokers limits its customers from investing more than 10% of their assets directly into bitcoin because he thinks "that would be very dangerous."
In a statement to Business Insider, Interactive Brokers confirmed that the platform applies limits to clients' maximum bitcoin exposure.
"To ensure cryptocurrencies remain a complement to our core business, we will limit clients from opening cryptocurrency positions above certain thresholds through any IBKR-linked Cryptocurrency Service Providers," Interactive Brokers told Business Insider.
Despite Peterffy's concerns surrounding cryptocurrencies, bitcoin has been on a tear, hitting record highs on Monday above $107,000.
But Peterffy isn't alone in his cautious stance on the world's largest cryptocurrency.
In his 2025 outlook, BCA Research strategist Peter Berezin argued that the token is nothing more than a leveraged bet on technology stocks and warned investors that it could crash 57% to $45,000 in 2025.