From 196% to -50%: How dangerous is the leverage game of Bitcoin funds?

[Crypto World] An interesting cautionary tale — a certain crypto asset management fund once tried to make quick money with a combination of tactics: issuing new shares, increasing debt, and then pouring all the raised funds into Bitcoin. This approach was indeed profitable in the first five years, with stock returns soaring to 196%, while Bitcoin’s increase was only 169%, making it look like leverage was working at full throttle.

The turning point came. Over the past year, Bitcoin’s price basically stagnated, but the fund’s stock value was cut in half. Where did the problem lie? The newly issued shares diluted each share’s equity, the added debt became a heavy burden, and with Bitcoin’s stagnation, there was no growth to cover these costs. As a result, more and more shareholder equity was swallowed up, and leverage turned into a negative factor.

The most painful part is that the fund’s performance was almost entirely tied to Bitcoin’s price movements — if it went up, it went up; if it went down, it went down. Without alpha returns to cushion the blow, once the crypto market entered a sideways phase, the leverage structure began to self-destruct. This serves as a warning to all projects using debt + share issuance to leverage: during cycle bottoms or consolidation phases, high leverage is not an accelerator but a squeeze tool.