A brutal truth about leverage, AI, and Bitcoin

Written by: thiigth

If there is one astonishing scene in the 2024 capital markets, it is this—everyone wants to become the next Michael Saylor, but most die halfway there.

In recent months, a wave of so-called “Bitcoin Treasury Companies” has emerged in the US stock market. They try to replicate the MicroStrategy script: issuing bonds, buying Bitcoin, and pushing up stock prices. However, the results have been disastrous.

Veteran investor Andy Edstrom bluntly describes this phenomenon as a “Dumpster Fire” in a recent in-depth interview. Many imitators’ stock prices have plummeted 80% to 95% from their highs, leaving countless retail investors wiped out in this round of “false prosperity.”

Why is it that the same strategy makes MicroStrategy a legend, but others become a joke? In an era where AI narratives are crushing everything like a freight train, is Bitcoin still the best refuge asset?

Today, we peel back the noise and discuss the underlying logic behind it.

Chapter 1: MicroStrategy’s essence is not “buying coins”

This is an counterintuitive understanding: if you think Michael Saylor is just crazily borrowing money to buy Bitcoin, you might only see the surface.

Andy Edstrom offers a razor-sharp mental model: MicroStrategy is actually earning interest spreads by issuing “USD stablecoins.”

Let’s dissect this mechanism: the familiar USDT (Tether), backed by US Treasury bonds, issues dollar tokens. What MicroStrategy does is essentially “using Bitcoin as collateral to issue yield-generating dollar tokens.”

In reality, these “dollar tokens” correspond to its issued convertible bonds and preferred stock.

Mechanism: it borrows low-cost dollars from the market (via bonds/preferred stock), then converts these funds into Bitcoin.

Safety margin: To ensure the system’s security, a very high “over-collateralization ratio” is required. Andy points out that, considering Bitcoin’s volatility (a 70-80% drop within a year), MicroStrategy maintains approximately a 5:1 over-collateralization ratio.

This explains why it is currently the only successful player. It holds a massive stockpile of Bitcoin (worth about $56 billion as of the recording), enabling it to magnify returns safely through leverage.

This is textbook financial engineering.

In contrast, those imitating as “Digital Asset Reserve Companies” (DATs) are often teams with no experience managing listed companies, with no cash flow from core business, and even fail to submit basic SEC financial reports on time. They attempt high-leverage play without safety cushions, which is a recipe for disaster.

“This is a dichotomous world: MicroStrategy stands alone in a league of its own, while most imitators are a complete disaster.”

Chapter 2: The fog of valuation—why do we pay premiums?

This leads to the biggest debate in investing: if I want to hold Bitcoin, why not just buy spot, instead of paying a hefty premium for MSTR?

This involves a key metric: MNAV (Market Net Asset Value).

Many enthusiasts try to brainwash the market into believing that such companies should enjoy 2x or even 15x MNAV premiums. Andy Edstrom, with an economics background, scoffs at this. He reviews a century of data on closed-end funds:

Normal: Closed-end funds usually trade at discounts (e.g., 10-20%), with only rare cases of slight premiums.

Exception: Highly managed conglomerates like Berkshire Hathaway, or banks with 10x leverage, can sustain around 2x book value premium.

The harsh conclusion: unless a company can prove it can outperform Bitcoin through active management (such as low-interest financing, cashing out at high, buying back low), it shouldn’t enjoy long-term high premiums.

For MSTR, the market pays a premium because it has indeed increased the per-share Bitcoin holdings through capital operations. But for other small firms with no positive cash flow and merely hoarding Bitcoin (or Ethereum, BNB), paying a premium is just paying an “IQ tax.”

Chapter 3: The elephant in the room—AI draining Bitcoin’s liquidity

We must face an awkward reality: over the past year, Bitcoin’s price trend has appeared “boring” and sluggish compared to AI tech stocks.

Why? Because AI narratives are incredibly sexy.

Preston Pysh makes a keen observation: understanding Bitcoin requires a high cognitive threshold (cryptography, monetary history, geopolitics). This creates a huge “educational burden.”

In contrast, AI is about “instant gratification.” Anyone can open their computer, ask a question, and ChatGPT or Gemini immediately provides an astonishing answer. Investors instantly understand: “Wow, this can change the world. I want to buy shares of the companies making it.”

This explains the flow of capital. Take Google as an example: despite initial ridicule, its Gemini model is iterating rapidly, challenging OpenAI. Meanwhile, Elon Musk’s Tesla, with Robotaxi and humanoid robots (Optimus), is building the blueprint of the next industrial revolution.

“This (AI and robots) is like a high-speed freight train. When you see Elon’s planned factory scale, it seems crazy. But when it’s real, it will be the market’s absolute dominator.”

Does this mean Bitcoin is obsolete? Absolutely not.

Andy Edstrom sticks to his 2019 judgment: Bitcoin still has the potential to reach $400,000 per coin by 2030 (based on an $8 trillion network value).

But the investment logic has changed. In 2019, Bitcoin was “the best risk-adjusted investment of this generation.” Now, in 2025, while it still has a 5x growth potential, it faces stiff competition from AI productivity breakthroughs.

The world is splitting into two main tracks:

Unlimited fiat currency printing (driven by government debt and social chaos caused by AI).

Extreme productivity deflation (driven by AI and robots).

Bitcoin is a hedge against the first, while tech giants are capturing the second.

Epilogue: Finding certainty amid the chaos

When the tide recedes, most so-called “Bitcoin concept stocks” are left exposed, while actual giants (like MSTR) are evolving into a new type of financial institution.

For ordinary investors, the current market is full of noise. Here are three action points distilled from this deep discussion:

1. Beware the leverage trap of “pseudo-reserve companies.” Don’t be fooled by marketing terms like “the next MicroStrategy.” If a company has no strong core cash flow and no sufficient Bitcoin collateral, its high premium is just an illusion. If you are bullish on Bitcoin, buying Bitcoin itself (or spot ETFs) remains the lowest-risk option.

2. Embrace the fundamental logic of energy and computing power. The end of AI is energy. With the explosion of data centers and robots, electricity demand will grow exponentially. Solar energy cannot fill all gaps; natural gas and other base load energies may be seriously undervalued. Don’t just focus on chips—look at the pipelines powering chips.

3. Bitcoin is “insurance,” not “lottery.” If you buy Bitcoin just to get rich quickly, you might be disappointed or lured away by AI’s surges. The ultimate reasons to hold Bitcoin remain: resistance to censorship and protection against fiat collapse. When governments, to combat AI-driven unemployment, start printing money with nuclear force, Bitcoin’s immutable value network will be your most solid bottom line on the balance sheet.

In this era of uncertainty, holding the private key (self-custody) remains the last line of defense.

“Everything takes longer in Bitcoin than we think it will.” (Bitcoin’s development always lags behind our expectations, but that doesn’t mean it won’t happen.)