Blue Owl’s liquidity challenges have investors preparing for a potential repeat of 2008’s consequences — this might indicate the onset of Bitcoin’s forthcoming bullish trend.

Private-equity firm Blue Owl Capital (OWL) experienced a decline of nearly 15% this week as it was compelled to liquidate $1.4 billion in assets to accommodate investors seeking to withdraw from one of its private credit funds.

Another Bear Stearns moment? (Getty images)

What to know:

• Confronted with investor redemption requests, private-equity firm Blue Owl Capital (OWL) announced late this week that it is divesting $1.4 billion in assets.
• Former Pimco CEO Mohamed El-Erian remarked that this situation could be a "canary-in-the-coal-mine" moment akin to the 2007 failures of two Bear Stearns hedge funds that foreshadowed the global financial crisis.
• The U.S. government’s and Federal Reserve’s eventual actions — bank bailouts, zero interest rate policies, and quantitative easing — contributed to the emergence of Bitcoin in early 2009 and supported its evolution from a concept to a $1 trillion asset.

Blue Owl Capital’s (OWL) declaration this week regarding the sale of $1.4 billion in loans to generate liquidity for investors in a retail-oriented private credit fund has raised concerns throughout financial markets, with numerous well-known analysts making direct comparisons to the two Bear Stearns hedge fund failures that predicted the 2008 financial crisis — and for Bitcoin BTC$68,232.07 investors, the consequences could be significant.

Despite no adverse effects on the major stock market indices, Blue Owl shares plummeted approximately 14% for the week and are now down more than 50% year-over-year. Other significant private-equity firms, such as Blackstone (BX), Apollo Global (APO), and Ares Management (ARES), also experienced considerable declines.

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This situation has evoked painful memories for those who experienced the 2008 global financial crisis (GFC).

In August 2007, two Bear Stearns hedge funds failed after incurring significant losses on subprime mortgage-backed securities, while BNP Paribas suspended withdrawals in three funds, citing difficulties in valuing U.S. mortgage assets. Credit markets tightened, liquidity diminished, and what appeared to be a localized issue escalated into the global financial crisis.

"Is this a ‘canary-in-the-coalmine’ moment, similar to August 2007?" inquired former Pimco head Mohamed El-Erian. "There’s much to consider here, particularly regarding the risks associated with an investing trend in [artificial intelligence] markets that may have gone too far," he added. El-Erian was quick to note that while the potential risks could be systemic, they do not seem to approach the scale of the 2008 crisis.

Blue Owl’s predicament may or may not represent another Bear Stearns moment, but if it does, what could that signify for Bitcoin?

Initially, stress in private credit does not inherently imply that Bitcoin will surge. In fact, in the short term, stricter credit conditions can negatively impact risk assets, including Bitcoin and the broader cryptocurrency market. While Bitcoin was not present during the 2008 crisis (more on that later), its price movements during the unfolding of the Covid crisis — a decline of about 70% from mid-February 2020 to mid-March — are noteworthy.

The response from the U.S. Federal Reserve could ultimately be very bullish for Bitcoin. In 2020, trillions of dollars were injected into the economy, propelling BTC from a low of below $4,000 to over $65,000 within approximately a year.

The events of 2007-2008 followed a similar pattern: initial credit market distress, denial in equity markets, contagion in the banking sector, followed by significant central bank intervention. If Blue Owl serves as the "first domino" — as former Peter Lynch associate George Noble asserted — the sequence may repeat with private credit taking the place of subprime mortgages as the catalyst.

"Chancellor on brink of second bailout for banks"

One of the significant outcomes of the 2008 episode was the emergence of Bitcoin.

The world’s first cryptocurrency was created during the global financial crisis, partly because its enigmatic creator (or creators), Satoshi Nakamoto, became disenchanted with governments and central banks generating vast sums, if not trillions, of dollars with little more than a few keystrokes.

Another key aspect of the world’s largest digital asset was the aim to establish a parallel digital currency that would enable direct peer-to-peer online transactions without the involvement of any financial institution or government intervention. The intention was to offer a direct alternative to a traditional banking system that had just demonstrated its vulnerability to destabilizing the global financial order through the actions of centralized entities.

Notably, Bitcoin’s first-ever block, known as the Genesis Block on January 3, 2009, featured an inscription by Satoshi stating "Chancellor on brink of second bailout for banks." This headline appeared in The Times of London that day as the U.K. government and the Bank of England formulated a response to the ongoing challenges in the financial sector.

Valued nearly at zero on that day and known only to a small number of "cypherpunks," Bitcoin, 17 years later, boasts a market capitalization exceeding $1 trillion and has the largest asset managers globally considering it a nearly essential asset for most portfolios.

Bitcoin, as it is recognized today, significantly differs from the original cryptocurrency of 2009. Presently, the concepts of "store of value" and "digital gold" have evolved. What was intended to be anti-establishment has integrated into the broader financial system. Major holders are accumulating substantial amounts of Bitcoin on their balance sheets, financial corporations are providing Bitcoin to the public through exchange-traded funds, and even some government entities are acquiring it for their strategic reserves.

So, does Blue Owl’s failure indicate a resurgence of Bitcoin’s foundational thesis and, consequently, another bull market? Only time will tell, but if this incident turns out to be El-Erian’s "canary," signaling another significant crisis, the global financial system could face a harsh reality, and Bitcoin might emerge as a solution, regardless of the form it has taken after 17 years.

Read more: Bitcoin’s plunge signals coming AI crisis, but massive Fed response will drive new record high: Arthur Hayes