2025's Trading Reckoning: Michael Burry, Political Disruption, and Market Reversals

When markets collide with politics, financial history often repeats itself—not always with the outcomes investors expect. Throughout 2025, legendary investor Michael Burry demonstrated this truth by betting against the very narratives that drove markets to euphoric heights. From his bearish positions on artificial intelligence stocks to observing the collapse of overleveraged crypto positions, Burry’s strategic moves embodied a broader market reality: conviction reversal happens fast, and those who misread political tailwinds face devastating reversals.

The year 2025 will be remembered not for sustained bull markets or textbook trades, but for violent reversals that exposed the fragility underlying seemingly dominant market narratives. Across cryptocurrencies, equities, bonds, and emerging markets, political decisions, policy shifts, and leverage-driven bets created both extraordinary windfalls and catastrophic losses. What tied many of these trades together was their dependence on unsustainable assumptions: that politicians would sustain policies, that debt wouldn’t matter, that speculative premiums would persist indefinitely.

This was the year of “high-conviction reversals”—and understanding why positions that seemed bulletproof suddenly imploded offers crucial lessons for navigating 2026’s risks.

Political Fuel and Speculative Fire: When Trump-Related Assets Hit Reality

The cryptocurrency sector in 2025 learned an old lesson at high cost: political endorsement cannot replace fundamental economics.

Following Donald Trump’s return to the White House, the logic seemed simple to retail traders: buy everything bearing the Trump brand, ride the momentum, and exit before reality arrives. This thesis propelled several assets into the stratosphere within weeks. Hours before Trump’s inauguration, he launched a Meme coin that surged on social media hype. First Lady Melania Trump followed with her own token. By mid-year, World Liberty Financial (associated with the Trump family) opened its WLFI token for trading, attracting retail investment flows desperate for the next moonshot. Eric Trump’s involvement in American Bitcoin, a publicly traded crypto mining venture that merged and went public in September, added another layer to what traders called the “Trump-affiliated crypto matrix.”

The pattern was identical across each launch: initial euphoria drove prices to euphoric levels, then leverage-driven unwinds erased most gains. By late December, Trump’s Meme coin had collapsed 80% from its January peak. Melania’s token plummeted nearly 99%. American Bitcoin’s stock crashed 80% from September highs.

The underlying dynamic revealed itself: price increases attracted leveraged capital flows, liquidity dried up when momentum stalled, and the asset class’s cyclical nature reasserted itself. Political tailwinds cannot sustain unsustainable leverage. Even with administration allies in place, these assets could not escape the gravitational pull of overcapitalization and thin liquidity.

Bitcoin itself, the sector’s bellwether, recorded substantial losses for 2025 after its October peak, finishing the year down 12.65% to trade near $89,320 as of January 2026—a humbling reminder that even legitimate assets cannot defy market cycles indefinitely when they’ve been pushed to unsustainable valuations.

Michael Burry’s Bet Against the AI Narrative: When Genius Reads the Room

On November 3, 2025, Scion Asset Management filed a routine disclosure that proved anything but routine. The fund, managed by Michael Burry—the investor famous for predicting the 2008 subprime mortgage crisis—revealed substantial put option positions on two of the market’s most dominant stocks: Nvidia and Palantir Technologies.

The strike prices alone signaled conviction. Nvidia’s put options were struck 47% below its trading price at disclosure. Palantir’s were positioned 76% lower. For a legendary investor known for prescient macroeconomic calls, this filing was a gauntlet thrown at the market’s AI thesis.

Burry’s logic was precise: These companies carried valuations and capital spending profiles that had become disconnected from reasonable expectations. Yet the broader market, dominated by passive capital flows chasing AI exposure, had constructed a narrative so powerful that challenging it seemed heretical. Burry disagreed. Like the tinder he identified before the 2008 crisis, he believed the AI boom contained seeds of its own reversal.

The disclosure ignited market doubts that had been accumulating beneath the surface. Following Burry’s 13F filing, Nvidia plummeted. On social media, Burry revealed he had purchased Palantir puts at $1.84, watching them surge 101% in less than three weeks. While the exact magnitude of his profits remains undisclosed, the directional thesis proved accurate: once conviction falters in concentrated markets, even the strongest narratives can reverse with stunning velocity.

Burry’s AI bet represented a deeper pattern evident throughout 2025: leverage-dependent market rallies—whether in stocks, crypto, or bonds—cannot withstand scrutiny from investors with both conviction and capital.

Defense Stocks Surge as Geopolitics Rewrite Capital Allocation Rules

While AI narratives fractured, an entirely different sector experienced a reversal of fortune rooted in geopolitical realities. European defense stocks, once considered pariah assets under strict ESG mandates, experienced one of 2025’s most dramatic reversals.

Germany’s Rheinmetall rose approximately 150% year-to-date. Italy’s Leonardo SpA surged over 90% in the same period. These weren’t speculative micro-caps; they were substantial companies suddenly receiving institutional capital.

The driver was Trump’s signaled reluctance to maintain Ukraine military funding and Europe’s corresponding decision to rearm. ESG-focused fund managers, once reflexively excluding defense stocks, suddenly reframed the sector. Pierre Alexis Dumont, chief investment officer at Sycomore Asset Management, articulated the shift: “We only reinstated defense assets into our ESG fund earlier this year. The market paradigm has shifted, and with a paradigm shift we have to take responsibility and defend our values—so we are now focusing on assets related to defensive weapons.”

The rebranding was striking: defense shifted from “reputational liability” to “public good” in a matter of months. Banks launched “European Defense Bonds”—green bond equivalents earmarked for weapons manufacturers. Even tangential suppliers saw capital inflows.

By December 23, the Bloomberg European Defense Stock Index had risen over 70% year-to-date, outperforming the surge at the 2022 Russia-Ukraine conflict outbreak. This trade underscored a crucial 2025 lesson: capital allocation responds faster to geopolitical shifts than ideology adjusts to new realities.

Devaluation Trades: Gold’s Triumph, Bitcoin’s Disappointment, and the Complexity of Macro

Throughout 2025, investors citing history—particularly Roman emperors’ currency debasement during fiscal crises—positioned portfolios for “devaluation trades.” The logic held superficial appeal: U.S., French, and Japanese debt burdens were unsustainable; central banks and politicians lacked will to address deficits; therefore, hard assets would appreciate as fiat currency depreciated.

In October, this narrative reached crescendo. The longest government shutdown in U.S. history collided with concerns about fiscal sustainability. Simultaneously, gold and Bitcoin—typically viewed as competing rather than complementary assets—both hit all-time highs in an unusual moment of synchronized strength.

Investors who had built portfolios around the devaluation thesis believed their moment had arrived. It hadn’t.

Subsequently, Bitcoin corrected sharply—ultimately declining 12.65% for 2025—while the U.S. dollar stabilized. Most unexpectedly, U.S. Treasury bonds posted their best year since 2020, contradicting expectations of fiscal deterioration-driven selloffs.

Gold maintained its upward trajectory and continues hitting historical peaks. The divergence between assets once grouped under “devaluation trade” revealed a more nuanced reality: inflation hedging, interest rate sensitivity, and safe-haven demand operate independently. The devaluation trade functioned not as a complete rejection of fiat currency but as a precise calculation on rates, policy, and institutional risk appetite.

For assets like Bitcoin, political narratives and speculative leverage proved inadequate to sustain valuations divorced from fundamental utility. For gold, the narrative proved more enduring.

South Korea’s “K-Pop” Market Surge Masks Domestic Investor Exit

Few markets offered more drama than South Korea’s in 2025. President Lee Jae-myung’s explicit policy to “boost the capital market,” supported by pro-business reforms, propelled the Kospi index to surge over 70% year-to-date by December 22, on track to reach his proposed 5,000-point target.

Wall Street’s response was surprising: JPMorgan Chase and Citigroup began publicly endorsing the goal as achievable by 2026, pointing to the global AI boom’s outsized impact on South Korea’s semiconductor supply chain.

Yet beneath this “internationally leading” rebound sat a troubling statistic: domestic South Korean retail investors remained net sellers. Even as foreign capital poured in, locals diverted a record $33 billion into U.S. stock markets and leveraged overseas ETFs, including cryptocurrency positions.

The Korean won depreciated accordingly, reflecting capital flight. South Korea’s miracle recovery masked capital structure deterioration—a pattern common in 2025 when observing divergence between headline indices and underlying capital flows.

The Chanos-Saylor Showdown: When Bitcoin Premiums Collapse

Few rivalries in finance proved as ideologically charged or as profitable as short-seller Jim Chanos’s public confrontation with Michael Saylor’s MicroStrategy over the valuation premium of Bitcoin-holding companies.

MicroStrategy’s business model was straightforward: accumulate Bitcoin, use the stock as a vehicle for Bitcoin exposure, and benefit from any premium investors assigned relative to Bitcoin’s intrinsic value. Early 2025 saw MicroStrategy’s stock price soar as Bitcoin surged, and the premium expanded.

Chanos identified the vulnerability. In May, with MicroStrategy’s premium still substantial, he announced his short position publicly: he would short MicroStrategy while going long Bitcoin, capturing the spread as the premium inevitably normalized.

Saylor fought back: “I don’t think Chanos understands our business model at all.” Chanos responded via social media, dismissing Saylor’s defense as “utter financial nonsense.”

By July, MicroStrategy had risen 57% year-to-date, and Chanos’s thesis appeared challenged. Then, as the number of Bitcoin-holding corporate proxies multiplied and Bitcoin corrected from its peak, the premium collapsed. MicroStrategy’s stock fell 42% from announcement of Chanos’s final exit in November.

The deeper lesson transcended personalities: leverage-dependent valuations—whether stocks trading at premiums to holdings or crypto assets sustained only by fresh capital inflows—revert when conviction shifts. Chanos’s profit came not from investment genius but from recognizing that capital cycles are immutable.

Japan’s “Widow Maker” Becomes the Year’s Biggest Winner

For decades, the “widow maker” trade—shorting Japanese Government Bonds—had crushed macro investors and hedge funds. The Bank of Japan’s commitment to loose monetary policy kept yields artificially suppressed, punishing those betting on normalization.

In 2025, the widow maker finally worked.

The Bank of Japan raised rates. Prime Minister Sanae Takaichi announced post-pandemic fiscal spending. The 10-year JGB yield broke through 2%, a multi-decade high. The 30-year bond yield rose over 100 basis points, setting a new record.

By December 23, the Bloomberg Japan Government Bond Return Index had fallen 6% for the year, making it the worst-performing major bond market globally. Fund managers from Schroders, Jupiter Asset Management, and RBC Blue Bay Asset Management publicly discussed short positions as the trade continued offering opportunities.

Japan’s debt-to-GDP ratio remained far ahead of other developed economies, suggesting bearish sentiment could persist. The widow maker’s triumph in 2025 paradoxically underscored how durable misguided consensus can be—this trade only worked after decades of losses proved the initial thesis correct.

Creditor Tactics and the $4 Billion Amsurg Transformation

The credit market’s most lucrative 2025 returns didn’t come from betting on corporate recovery; they came from institutional investors choosing sides in creditor battles.

KKR-backed Envision Healthcare, a hospital staffing provider, faced post-pandemic strain requiring new capital infusions. Raising new debt required collateralizing already-pledged assets—a proposal most creditors opposed.

Pimco, Golden Street Capital, and Partners Group made a calculated decision: they’d abandon the unified creditor front, switching sides to support the restructuring. In exchange, they secured positions backed by Envision’s high-value Amsurg outpatient surgery business as collateral.

When Amsurg was subsequently sold to Ascension Health for $4 billion, these institutions converted their debt into equity, realizing approximately 90% returns.

The trade revealed a core 2025 credit market reality: unified creditor action cannot be assumed. Loose lending terms, dispersed borrower bases, and “cooperation” are luxuries markets no longer afford. Institutions that identify vulnerabilities and exploit them among peers capture asymmetric returns.

Fannie Mae and Freddie Mac: From “Toxic Twins” to Trump Administration Redemption

Few assets captured 2025’s speculative exuberance better than shares of Fannie Mae and Freddie Mac, the mortgage giants long trapped in government receivership.

For years, hedge fund manager Bill Ackman and others had held long-term positions betting on eventual privatization. The market remained skeptical, and shares languished in over-the-counter trading.

Trump’s re-election changed calculations instantly. Markets anticipated the administration would accelerate privatization, potentially through IPO. By September’s peak, Fannie Mae and Freddie Mac stocks surged 367%—an absolutely staggering move that rivaled cryptocurrency performances and meme stock episodes.

August news that privatization via IPO was under serious consideration pushed speculation into overdrive. Markets projected IPO valuations exceeding $500 billion with plans to sell 5%-15% of shares, raising approximately $30 billion.

In November, Bill Ackman submitted a formal proposal to the White House detailing a specific privatization structure: relisting on the NYSE while writing down Treasury preferred stock and exercising government-level options to acquire approximately 80% of common stock.

Even Michael Burry, characteristically contrarian, pivoted and published a 6,000-word blog post in early December arguing these “toxic twins” might no longer deserve the designation, endorsing the stock.

The trade underscored 2025’s pattern: positions dependent on political follow-through exhibited massive moves but contained significant reversal risk. Privatization narratives, while plausible, remain subject to political whims and bureaucratic resistance.

Turkish Carry Trade: When Political Shock Obliterates Years of Returns in Minutes

The Turkish carry trade had seemed like consensus genius in 2024. Turkish domestic bond yields exceeded 40%. The central bank pledged currency stability against the dollar. Global institutions—Deutsche Bank, Millennium Partners, Greystone Capital—borrowed at low overseas rates, invested in high-yield Turkish assets, and collected outsized yields.

Billions flowed in. March 19, 2025 arrived. Turkish police detained Istanbul’s popular opposition mayor on charges related to municipal governance. Protests erupted immediately.

The carry trade evaporated in minutes.

Kit Jürgensen, Société Générale’s head of FX strategy, articulated the shock: “Everyone was caught off guard, and no one will dare return to this market anytime soon.” Within a single trading session, approximately $10 billion flowed out of Turkish lira-denominated assets. The central bank proved powerless to defend the currency.

By December 23, the lira had depreciated 17% against the dollar, making it one of 2025’s worst-performing currencies. The trade served as painful reminder: no yield justifies ignoring political risk.

Hidden Defaults: The Credit Market’s “Cockroach” Reckoning

The credit market’s 2025 deterioration wasn’t catalyzed by a single catastrophic collapse but by a series of smaller-scale defaults that exposed systemic negligence.

Saks Global restructured $2.2 billion in bonds after a single interest payment, with restructured bonds trading below 60% of face value. New Fortress Energy’s newly issued exchangeable bonds lost over 50% of value within a year. Tricolor and First Brands bankruptcies wiped billions in debt value within weeks.

What united these diverse failures was a common pattern: lenders had extended substantial credit to companies exhibiting virtually no evidence of repayment capacity. Years of accommodative monetary policy and zero default rates had eroded underwriting rigor. Double collateralization, commingled collateral, and other credit standard violations went undetected.

JPMorgan Chase’s involvement in several of these disasters prompted CEO Jamie Dimon to issue an October warning. Using vivid imagery, he compared undetected risks to cockroaches: “When you see one cockroach, there are likely many more lurking in the shadows.”

The implication was clear: 2025’s small-scale failures foreshadowed larger 2026 deterioration if underwriting standards remained compromised.

The Lessons of 2025: Unsustainable Leverage, Political Risk, and Narrative Fragility

As markets prepare for 2026, several patterns from 2025 demand investor attention.

First, leverage-dependent narratives—whether crypto trades sustained only by fresh capital, stock premiums exceeding fundamental value, or yield trades ignoring political risk—cannot resist reversals indefinitely. Michael Burry’s bearish AI positions, Jim Chanos’s MicroStrategy short, and the Turkish carry trade’s collapse all shared this vulnerability.

Second, political outcomes drive markets more than markets can rationally process. Trump-related crypto assets, European defense stocks, Korean market positioning, and Turkish FX moves all reflected political events’ cascading effects. When political narratives shift, capital allocation reverses faster than ideology adjusts.

Third, hidden risks accumulate during periods of loose lending, suppressed volatility, and passive capital dominance. The credit market’s “cockroach” discoveries suggest 2026 may bring further unwelcome surprises as legacy credit assumptions confront reality.

For investors contemplating 2026, the 2025 playbook offers clear warnings: conviction reversals happen violently, political risk cannot be hedged away through yield, and leverage-dependent trades contain embedded termination dates that markets cannot predict but cannot evade. Michael Burry’s willingness to position against dominant narratives, regardless of short-term pain, offers a counterweight to consensus momentum—a lesson the market repeatedly relearned throughout 2025.