The Year of Reversals: How jim chanos, Michael Burry, and Key Market Bets Defined 2025

The 2025 financial markets delivered a masterclass in volatility, political influence, and the fragility of supposedly “safe” trades. From Tokyo to Istanbul, from Wall Street to Seoul, investors discovered that conviction in markets can evaporate overnight—and that fortunes built on leverage, speculation, and political momentum are equally vulnerable to reversal. This year saw celebrated investors like jim chanos vindicated by their skepticism, while others burned through billions on trades that seemed unstoppable just months earlier.

As we look back on the year, several patterns emerge: markets rewarded those who questioned prevailing narratives, punished those who chased momentum blindly, and consistently reminded participants that no trade is truly “sure.” The story of 2025 is less about individual winners and losers than about the cycles of confidence, doubt, and collapse that continue to define modern finance.

Cryptocurrency’s Political Moment

For much of 2025, “buying anything Trump-branded” became the defining momentum trade in digital assets. Following Donald Trump’s return to the presidency and his public embrace of the cryptocurrency industry, his family launched a series of tokens designed to capitalize on political enthusiasm.

The Trump family’s token launches:

• Trump himself launched a meme coin in early January, promoted aggressively on social media
• Melania Trump followed with her own token, positioning it as a personal venture
• World Liberty Financial, a Trump-family-affiliated initiative, opened WLFI for trading by mid-year
• Eric Trump backed American Bitcoin, a publicly traded cryptocurrency mining company that went public via merger in September

Each launch sparked initial euphoria. Retail investors piled in, attracted by the implicit political endorsement and the promise that administration allies would shepherd regulatory changes favorable to crypto. For a brief window, these tokens surged.

By January 2026, the reality had become stark. Trump’s meme coin had cratered to $4.77 from its peak of $78.10—a collapse of 94%. Melania’s token fell to $0.17 from $14.18, a destruction of 99%. Even American Bitcoin’s stock price, which had hit near-highs in September, fell approximately 80% from peak. WLFI, trading at $0.16 against a high of $1.10, reflected similar dynamics.

The pattern was familiar to crypto veterans: initial enthusiasm → leverage-driven inflows → liquidity exhaustion → collapse. Politics can generate short-term momentum, but it cannot sustain valuations untethered from economic fundamentals. Bitcoin itself, the industry’s bellwether, fell from its October 2025 highs and was trading at $88.95K by late January 2026—down from its all-time high of $126.08K.

The AI Reckoning: When Conviction Wavers

On November 3, 2025, Michael Burry’s Scion Asset Management filed a routine SEC disclosure that proved anything but routine. The filing revealed that Burry—the investor famous for predicting the 2008 subprime collapse—had taken protective put options (bearish bets) on two of the market’s most dominant stocks: Nvidia and Palantir Technologies.

The strike prices were audacious. Burry’s put options on Nvidia were set 47% below the stock’s price at disclosure time. For Palantir, they were 76% lower. This was not a subtle hedge; it was a frontal challenge to the entire narrative that had driven the market’s surge: that artificial intelligence stocks were worth their astronomical valuations.

The market’s reaction was swift. Nvidia, the world’s most valuable company, immediately sold off. Palantir followed. The broader Nasdaq index wobbled. For a moment, it seemed that Burry’s reputation—combined with his clear skepticism about AI valuations—might trigger a broader reckoning.

But the conviction that had driven the AI rally proved more durable than expected. Within weeks, both stocks recovered their losses. The market, it seemed, had decided that Burry was early or overly pessimistic.

Then came the twist. Burry subsequently revealed on social media that he had purchased Palantir put options at $1.84, and these same options surged by 101% in less than three weeks—proving profitable even as the underlying stock recovered. This disclosure laid bare a dynamic that would repeat throughout 2025: once conviction falters, even the strongest market narratives reverse quickly. The question became not whether the AI bubble would pop, but when.

Defense Stocks Rise as Geopolitics Shift

As geopolitical tensions escalated and European nations rushed to increase military spending, the sector that had been shunned as “toxic” by ESG-focused funds suddenly became fashionable. Germany’s Rheinmetall soared 150% year-to-date. Italy’s Leonardo saw gains exceeding 90%. These were not modest rallies; they were wholesale reversals of years of ESG-driven exclusion.

Fund managers who had previously avoided the defense sector altogether suddenly discovered that geopolitical risk was itself a form of risk management. “We reinstated defense assets into our ESG fund,” explained Pierre Alexis Dumont, chief investment officer at Sycomore Asset Management. “When paradigms shift, we have to reconsider our values.”

The appetite for defense stocks soon extended to suppliers and peripherally related companies. A Bloomberg index tracking European defense stocks rose over 70% year-to-date. Banks launched “European Defense Bonds”—modeled after green bonds but explicitly earmarked for weapons manufacturers and military suppliers.

The shift was as much about capital flows as ideology. When geopolitics change, money moves faster than principles. A sector that was reputationally toxic became a “public good” almost overnight.

The Devaluation Narrative: Gold and Bitcoin’s Synchronized Surge

Fears about sovereign debt across developed economies—particularly the United States, France, and Japan—prompted some investors to flee traditional assets and seek refuge in “anti-devaluation” trades. The logic drew from history: when governments face unsustainable debt, they eventually resort to currency devaluation to ease their burden.

In October 2025, this thesis reached its apogee. Gold and Bitcoin, typically seen as competitors, simultaneously hit all-time highs—a rare moment of alignment between traditional hard assets and speculative digital ones. It seemed the devaluation trade had found its perfect expression.

But “stories” and “trading strategies” are not the same thing. What followed exposed the difference. Bitcoin corrected sharply in the following months, ultimately declining to $88.95K by late January 2026. Meanwhile, gold continued climbing, printing new record highs repeatedly. The U.S. dollar stabilized rather than weakening. Treasury bonds, far from collapsing, posted their best year since 2020.

The devaluation trade remained partially intact—but only for investors who had been precise about asset selection and macroeconomic timing. Those who had interpreted it as a blanket short of fiat currency paid a price. The trade worked best for those who understood it not as a rejection of currency itself, but as a surgical bet on interest rates, policy, and flight-to-safety demand.

South Korean Equities Soar While Domestic Investors Flee

President Lee Jae-myung’s explicit policy goal of boosting the capital market to a “Kospi 5000” index level became the year’s most audacious government-market target. By December 2025, the Kospi index had soared more than 70%, driven by foreign capital pouring into South Korean tech stocks as the world’s AI boom continued.

Major Wall Street banks, including JPMorgan and Citigroup, began publicly endorsing the viability of the target by 2026. South Korean equities became, for global investors, the proxy play on Asian artificial intelligence exposure.

Yet beneath the surface lay a striking divergence: even as foreign capital flooded into the market, domestic South Korean retail investors were net sellers. A record $33 billion flowed from Korean retail investors into U.S. equities and other overseas assets. The gap between external enthusiasm and domestic skepticism suggested that the rally, while real, was potentially fragile. Meanwhile, capital outflows pressured the Korean won, a side effect that served as a reminder: a spectacular stock market rebound can mask persistent doubts from the people who know the market best.

jim chanos Wins Big Against Michael Saylor’s MicroStrategy Premium

By early 2025, Michael Saylor’s MicroStrategy had become the cryptocurrency market’s highest-conviction play—a company holding nearly $20 billion in Bitcoin that was trading at a significant premium to the value of its Bitcoin holdings alone. The premium reflected the market’s faith in Saylor’s vision and MicroStrategy’s utility as a leveraged Bitcoin proxy.

jim chanos, the legendary short-seller, identified an opportunity. If Bitcoin remained stable but the market reassessed MicroStrategy’s premium, a short position would profit handsomely. In May, with the premium still elevated, Chanos publicly announced his short thesis, directly challenging Saylor’s narrative.

What followed was a public debate. In June, when Saylor dismissed Chanos’s understanding on Bloomberg Television, Chanos responded on social media, calling Saylor’s explanation “utter financial nonsense.” The tone was brutal. Chanos was not hedging; he was issuing a direct challenge to the market’s valuation.

Then the cycle turned. As the summer progressed, two factors worked against Saylor’s premium: the number of other companies announcing Bitcoin treasury strategies surged, reducing MicroStrategy’s uniqueness, and crypto tokens fell from their peaks, reducing the enthusiasm that had supported the premium. By July, MicroStrategy stock had hit $57 (representing a 57% gain year-to-date), but the premium to net Bitcoin value began compressing.

By November 7, when Chanos announced he was “sell everything,” MicroStrategy stock had declined 42% from those heights. Chanos’s profit from the short was substantial, but the real value of his trade lay in what it revealed: that leverage-driven valuations dependent on momentum eventually collapse when conviction falters. The premium had evaporated not because something was fundamentally wrong with MicroStrategy’s business, but because the market’s appetite for speculative premiums had simply died.

Japan’s “Widow Maker” Trade Finally Pays Off

For decades, shorting Japanese government bonds (JGBs)—the “widow maker” trade—had been the graveyard of macro investors. The logic seemed bulletproof: Japan’s massive public debt would eventually force interest rates higher, causing bond prices to fall. Short sellers would profit.

But for years, the Bank of Japan’s unwavering commitment to low rates and monetary accommodation meant that interest rates stayed suppressed. Short sellers accumulated massive losses. The trade became a cautionary tale about fighting central banks.

Then 2025 arrived, and everything inverted. The Bank of Japan began raising policy rates. Prime Minister Sanae Takaichi announced aggressive fiscal spending plans. The 10-year JGB yield broke through 2%, reaching multi-decade highs. The 30-year yield surged more than 1 percentage point to new records.

The $7.4 trillion Japanese government bond market became a “short-seller’s paradise.” The Bloomberg Japan Government Bond Index fell more than 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 all participated in the trade, with strategists believing the trend had substantial room to continue.

The widow maker had finally paid. But the lesson was humbling: even the most logical thesis can prove ruinous if executed before the catalyst arrives.

Credit Market Conflict: Creditors Turn on Each Other

The most outsized credit returns of 2025 did not flow to investors who correctly predicted corporate recovery. They flowed to investors who mastered the art of playing creditors against one another.

When Envision Healthcare—a staffing and services provider owned by private equity firm KKR—required new financing post-pandemic, existing creditors faced a dilemma. New debt would require “collateralizing already-pledged assets.” Most existing creditors opposed the plan.

Then Pimco, Golden Street Capital, and Partners Group made a strategic decision: they would support the restructuring, siding with new creditors against existing ones. Their support enabled the proposal to pass. As a reward, these three firms became secured creditors backed by Amsurg, Envision’s high-margin outpatient surgery business.

Within months, Amsurg was sold to Ascension Health for $4 billion. The “betrayers”—those who had turned on their peer creditors—realized approximately 90% returns.

The trade revealed the modern credit market’s true dynamics: lenient terms, dispersed creditors with conflicting interests, and an environment where “correct judgment” matters less than “avoiding being overtaken by competitors.” In a market where cooperation is scarce and sides can be switched overnight, the largest profits accrue to those who move decisively against the consensus.

Fannie Mae and Freddie Mac: The Privatization Dream Reignites

Since the 2008 financial crisis, Fannie Mae and Freddie Mac—the government-sponsored mortgage giants—had been under federal control. Privatization remained a perennial fantasy for hedge fund investors holding long positions, with Bill Ackman among the most prominent believers.

But under prior administrations, nothing changed. The stocks languished in over-the-counter trading, a graveyard for illiquid securities.

Trump’s election changed the calculus. The market suddenly believed that a Trump administration would push for privatization. The two companies’ stocks began rallying, drawing “meme stock-like” enthusiasm. By September, they had surged 367% from year-start—with intraday moves reaching 388%. Suddenly, these “toxic twins” were among the year’s biggest winners.

In August, news that the government was considering a public offering amplified the frenzy. Market participants speculated about IPO valuations exceeding $500 billion and equity raises of $30 billion.

By November, even Michael Burry—who had made his name shorting subprime mortgages—had flipped bullish on the two companies, announcing that they might “no longer be toxic twins” and advocating for a structured privatization plan that would write down Treasury holdings while allowing common shareholders to retain substantial equity.

Yet beneath the enthusiasm lay uncertainty: Would privatization actually occur? Would valuations hold if it didn’t? The volatility that followed suggested that the rally remained vulnerable to shifts in political conviction.

Turkish Carry Trade Collapse: When Politics Overwhelms Yield

In 2024, Turkish carry trades were a consensus bet among emerging market investors. Turkish bond yields exceeded 40%, and the central bank pledged currency stability. The trade was simple: borrow cheaply overseas, convert to Turkish lira, and pocket the yield difference. Billions flowed in.

On March 19, 2025, within minutes, it all evaporated.

That morning, Turkish police detained Istanbul’s popular opposition mayor, sparking mass protests. The market, which had been pricing in political stability, suddenly repriced political risk. The lira plummeted. The central bank, powerless to defend the currency against a political shock, watched as an estimated $10 billion in lira-denominated assets were dumped.

As a Société Générale strategist noted at the time: “Everyone was caught off guard, and no one will dare return to this market anytime soon.”

By year-end, the lira had depreciated 17% against the dollar, making it one of the world’s worst-performing currencies. High yields cannot protect against sudden political reversals. The trade became a brutal reminder that political risk is often the risk that matters most.

The Bond Market’s Hidden Dangers: “Cockroach” Risk

The credit market in 2025 was not destroyed by a single spectacular collapse. Rather, it was undermined by a series of smaller crises—Saks Global restructuring $2.2 billion in bonds after a single interest payment, New Fortress Energy’s exchangeable bonds losing 50% of their value, and a string of bankruptcies wiping out billions in debt value.

What disturbed observers most was not the defaults themselves, but the question they raised: How had sophisticated lenders made such large bets on these companies with so little evidence of ability to repay?

The answer lay in years of compressed default rates and loose monetary policy, which had eroded lending standards. Institutions had failed to discover that borrowers like First Brand had engaged in “double-collateralization” and violations that should have been obvious during underwriting.

JPMorgan CEO Jamie Dimon captured the concern most vividly. Drawing on an analogy from pest control, he warned: “When you see one cockroach, there are likely many more lurking in the shadows.” The “cockroach risk”—hidden credit deterioration beneath the surface of what appeared to be solid underwriting—threatened to become one of 2026’s defining themes.

The Cycles Continue

Looking back at 2025, a clear pattern emerges: the year was dominated by trades that seemed to have “high certainty” at the moment of entry, but which contained hidden vulnerabilities. Trump-related crypto assets collapsed. The AI narrative faced credible skepticism from figures like Michael Burry. Carry trades blew up when political conviction shifted. Leverage that had built fortress-like valuations evaporated overnight.

Yet there were winners. jim chanos profited by questioning consensus. Burry made money even when his broader thesis was challenged. European defense investors rode geopolitical momentum successfully. Those who played creditor conflicts in the debt markets reaped substantial gains.

The most durable lesson: in markets where leverage, momentum, and political conviction drive prices, reversals come not through gradual realization but through sudden shifts in crowd psychology. Those traders and investors who maintain skepticism toward prevailing narratives, even when they seem unassailable, tend to prosper when conviction falters. As 2026 unfolds, that discipline may matter more than ever.