The crypto infinite money glitch appears to be broken – and we may never truly know what went wrong. The way it was supposed to work is that you take an irrelevant company, raise capital to buy Bitcoin – or some other token (they are all the same) – then tweet something quasi-religious about the future of money and put a lot of effort into creating AI memes – as good AI memes will definitely drive the token price up – I mean that’s in corporate finance textbooks at this point… This starts the flywheel spinning: The crypto goes up – pushing your stock price up, you then sell more stock to raise money - buy more crypto, rinse and repeat. If there are any annoying questions about cash flow, P/E ratios, or the fundamental laws of thermodynamics – that is possibly just a sign that you need to crank out more AI memes. Why run a business – which is dull and boring and can go wrong in so many ways - when you can just buy something tweet about it and pump its price?

Look – you can be as negative about this as you want to be – I know you guys can be judgmental - but it worked like a cheat code in a video game where companies could raise funds to buy crypto - that buying drove up the token prices; the firms stock price often went up even more than the crypto did – as idiots would buy the stock. Your quasi-religious tweets and memes to stir up your followers on the everything app were good for social media platforms and provided a real use case for Sora too – This was hype capitalism at its best. Whether you like it or not – it’s just how things work - it’s maybe even how things should work – as why have a company that does something - when you could just have a company that buys something and pumps its price up. It’s better… It’s more efficient… Over the last year, crypto treasury companies revolutionized the way business worked. And while it started with Microstrategy and Bitcoin – managers of other irrelevant companies worked out that you could stuff pretty much anything into this structure. As if you think about it – everything can be scarce if you raise enough money to buy all of it… The way I see it is that business has just been too complicated for too long – the guy with the high-pitched voice and the bitcoins - worked out that businesses - if you separate them from business activity can be much more efficient. Elon Musk – who spent billions of dollars on AI so that he could have a cartoon girlfriend says that most jobs will eventually become “optional,” comparable to hobbies like playing sports or gardening. He explained at a U.S. - Saudi Investment Forum that this can all happen as long as we create an AI that cares deeply about truth and beauty – and – you’re just not going to find a group that cares more about truth and beauty than the people attending an Elon Musk speech at a US Saudi investment forum.

In this brave new world – where everyone is living large and no one is working – we going to need our infinite money glitches to keep it all afloat. But… The problem now - is that the cheat code seems to have stopped working. Strategy - is no longer trading on animal spirits; it’s been dragged down by financial gravity. Since the company went all-in on bitcoin, it has hardly any other sources of revenue, and it now owes $800 million dollars a year in dividends and debt-interest payments. The massive premium to Net Asset Value - which was the magic dust that made the share issuance accretive - has evaporated to a pedestrian 1.15 times – worse than that - some of the copycat firms are now even trading at a discount to their crypto NAVs.

But amidst this graveyard of copycats, there was one hilarious exception: GameStop. When the original meme-stock king announced it was pivoting to a Bitcoin treasury, the stock actually fell 10%. Why did this happen?? Well, because unlike Strategy, GameStop has an actual business. It sells video games and Funko Pops to people in shopping malls – not all of whom are also GameStop shareholders. The market realized that if you have real revenue and real customers, you are judged on them.

To understand the Strategy collapse - you have to understand the bizarre arithmetic that drove the boom. The entire "Strategy" trade relied on a single, fragile variable: the premium. For most of 2024 and 2025, investors were willing to pay around two dollars for every one dollar of Bitcoin on Strategy’s balance sheet. Why? Because Strategy offered something you couldn’t get elsewhere: leverage without the margin call. If you took a leveraged position in Bitcoin on an exchange and the price crashed, you got liquidated. If you bought Strategy stock, you got loads of bitcoin exposure but if it tanked - you still had a huge loss – but you could hold on to your position and hope for a bounce. I made a video about crypto treasury companies last summer and in the comments section, Strategy cheerleaders were arguing that the business was valuable and should trade at a premium because without it investors couldn’t easily get leveraged exposure to bitcoin – but even then there were more than 100 other companies already doing the exact same thing – many at lower premiums – It just didn’t make sense to pay two dollars for a dollars’ worth of bitcoin.

This premium above NAV was a good thing according to Strategy investors however - as it created a recursive loop. If the stock trades at $200 but represents only $100 of Bitcoin, the company could issue a new share at $200, buy $200 worth of Bitcoin, and suddenly the "Bitcoin per share" of the existing holders (or HODLERS) went up. The way investors saw it - dilution was actually accretive. It was a magic trick – where the more stock Strategy sold to buy Bitcoin, the richer the existing shareholders became.

As of the time of this recording, Bitcoin is trading at around ninety thousand dollars – which is down about five percent year to date - that includes dividends and all other cashflows… Strategy, on the other hand is down around 40 percent year to date – which is worse.

Strategy is and was a very volatile stock – while it wasn’t an S&P500 member – it was more volatile than any other stock in that index – even meme stocks like Tesla and Palantir. Its high volatility enabled the convertible bond issuance that I described earlier – but for a certain type of investor – the most volatile stock wasn’t volatile enough. Retail traders piled into leveraged single stock ETF’s tied to Strategy like MSTX and MSTU which are down around 85% year to date. According to Bloomberg, that puts them among the 10 worst-performing funds in the entire US ETF market, out of more than 4,700 products currently trading. One of these leveraged Strategy ETF’s – MSTP was only launched in June and is down almost 85%. If you invested in these – you should probably keep quiet about it so that a court doesn’t order Britney Spears’ dad to look after your money for you. Bloomberg reported earlier this week that investors in these three leveraged ETF’s have lost about $1.5 billion in assets since early October.

The FT reported that NYSE-listed chipmaker Sequans sold $100 million dollars worth of Bitcoin to pay creditors just four months after pivoting to a digital asset treasury strategy. It’s CEO told the press “Our Bitcoin treasury strategy and our deep conviction in Bitcoin remain unchanged.”

Metaplanet - Japan’s biggest Bitcoin holder, raised a $130 million loan against its bitcoin stash after its stock fell 80%. Smarter Web Company, the UK’s poster child for crypto treasuries, is down 44% and trading at a discount to the crypto it holds.

For Strategy – if there is no recovery in the price of bitcoin, the real pain will begin in 2027, when the firm’s convertible debt starts to mature. Its borrowing – right now - is modest relative to its assets; but, its lack of alternative sources of income may force it to start selling its bitcoin.

So, Strategy is stuck. It is now selling common stock to raise cash so that it can make dividend payments to preferred stock holders. Now when you start raising capital from new investors to pay out old investors – your strategy starts to seem like more of a scheme…

As Bloomberg’s Matt Levine noted, “'We are selling billions of dollars of stock at a premium to NAV to buy Bitcoin' is a great story... 'We are selling a billion dollars of stock at NAV to pay interest on the loans we previously took out' is considerably less fun.”

So why has crypto been tanking recently – I don’t really know. It doesn’t really do anything – it’s just a number to bet on. It is not even that useful for illegal payments as things like stablecoins are better at that – so the price of things like bitcoin just rise and fall based on whether people think it will rise or fall in the future. It seems to have become highly correlated with tech stocks – but there is no real reason to believe that will continue.

In 2013, Joe Weisenthal wrote a column called Gold Is A Bet On Human Failure where he argued that buying gold is a "negative" economic act because it represents a bet that a "shiny rock" will hold value better than the "collective ingenuity of the human race" represented by stocks and productive companies. He argued that when investors buy gold, they are essentially hedging against "total political breakdown" and the failure of "peaceful human interaction".

He has since extended this logic to include Bitcoin which he describes as an even more profound form of "shorting" the system, arguing that Bitcoin’s appeal is based in a complete loss of trust in state capacity and institutions.

The Economist wrote a good piece last month called Crypto got everything it wanted. Now it’s sinking. In the piece they argued that the crypto industry has gone from being an object of mockery to being broadly accepted by politicians and regulators. But this victory has created a paradoxical problem: the thrill of the chase is over. Every major rally in recent years was fueled by the anticipation of specific milestones—like the approval of ETFs or the backing of a friendly US administration. Now that those battles have been won and investors have "no trouble getting their hands on bitcoin," the market has exhausted its most potent bullish narratives. Without a new catalyst or a "forbidden fruit" story to sell to the next wave of buyers, crypto is left as a purely speculative asset with no fresh reason for the number to go up.

My friend Zeke Faux appeared on Dan Toomey’s YouTube channel a few weeks ago – and if you haven’t watched that video you should. I’ll put a link in the description. In it he explained his "Juggalo Theory of bitcoin resilience." Zeke argued that Bitcoin has developed a fan base as committed and impervious to outside criticism as the Juggalos, the die-hard Insane Clown Posse fans – who dress up as clowns and attend an annual gathering. I should mention that Dan Toomey is a huge ICP fan – so don’t say anything bad about them around him… Zeke argued in the video that much like the way - you wouldn't bet against the Juggalos attending their big meetup every year - you shouldn't bet against Bitcoiners showing up to support the bitcoin price – or showing up in my YouTube comments section to say that Bitcoin is somehow not the same as crypto.... They are a cult – according to Zeke - that puts a floor on the asset price, simply by refusing to leave.

But Zeke then adds a critical twist to the analogy. Unlike the Juggalos, who congregate for the love of “the culture”, Bitcoiners have a powerful financial incentive to evangelize. "What if by recruiting more Juggalos, you would get rich?" he asks. If bringing in new fans directly increased your net worth, you would work a lot harder to recruit them—and suddenly, the music might start to sound a whole lot better to you.

If there are no walls left to breech – we are just left with Michael Saylor tweeting that Bitcoin is "a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth".

I’m not sure if something can be classified as a sentence if it makes no sense…

For now, the cyber hornets are quiet. The premium is almost gone, and the infinite money glitch may have been patched. And Strategy investors have been learning the oldest lesson in finance: leverage works both ways. The Ouroboros has finished eating its tail, and it turns out - it wasn't very nutritious.

If you found this video interesting, you should watch my video on AI’s circular financing bubble next. Don’t forget to check out our sponsor Saily using the link in the description – have a great day and talk to you in the next video – bye.