Warren Buffett famously said, “It’s only when the tide goes out that you find out who was swimming naked.” Buffett did not add that, unlike naturally induced exposure events, market losses would self-magnify if there was meaningful leverage. We are now realizing just how important borrowed money has been in sustaining the crypto boom, as experts warn that the downdraft could go from bad to bloody. This is due to the lack of regulation and centralized reporting, as well as the large number of coins involved. It is impossible to know how much debt was behind the crypto boom. But the continued failure of Bitcoin, once the pride of the pack, suggests a great deal.
We will soon discuss the “treasury” of cryptocurrencies. This is cleverly misleading branding for an organization that buys cryptocurrencies, borrows against them, and then sells the interest back to investors as ETFs, offering investors a very easy way to increase their crypto exposure. But first let’s look at the level of carnage.
From Coin Desk:
“October 2024 onwards” shouldn’t sound that bad…unless you’re a fund raiser who has added to a Bitcoin or crypto position since then.
For example, if it’s not selling #bitcoin pic.twitter.com/uRb5F4kGMO
— Vivek Sen (@Vivek4real_) December 1, 2025
However, the virtual currency treasury Strategygy is attracting attention. Current Bloomberg Asia featured articles:
From the text:
Retail investors who invested in Michael Saylor’s Bitcoin experiment are paying a heavy price, with Strategy’s stock price down more than 60% from recent highs. Shares of the most popular ETF tracking strategies have fallen more than 80% this year, with MSTX, MSTU, and MSTP losing about $1.5 billion in assets since early October. Strategy has set aside $1.4 billion in reserves to cover dividend and interest payments in hopes of allaying concerns that it will be forced to sell Bitcoin if prices fall further.
Strategy, once praised for consolidating crypto exposure into public stocks, is scrambling to calm the market after its stock price plummeted more than 60% from recent highs amid the proliferation of digital currencies. Strategy Inc. said on Monday it had set aside $1.4 billion in reserves to cover dividend and interest payments, allaying concerns that it would be forced to sell Bitcoin if prices fall further.
But for many investors, the damage has already been done. The most popular exchange-traded funds that track Strategy’s volatile stocks (MSTX and MSTU) have double daily returns, but both have fallen more than 80% this year. This puts them among the 10 worst-performing funds across the U.S. ETF market, out of more than 4,700 products currently traded, behind only obscure short bets on gold mining and semiconductor stocks. A third fund, known as MSTP, was founded during the crypto mania in June, but has fallen by a similar amount since its debut. Since early October, the trio have collectively lost about $1.5 billion in assets…
At the center of the concern is a valuation metric known as mNAV (market net asset value), which compares Strategy’s corporate value to its Bitcoin holdings. This premium has almost disappeared, leaving the ratio at around 1.15. This is a level that management has warned is a red flag. CEO Von Leh said on a podcast that a drop below 1.0 could force the company to sell Bitcoin to meet its payment obligations, albeit as a last resort.
Yahoo elaborates:
For five years, Strategy (NASDAQ:MSTR), still remembered in every trader’s mind as “MicroStrategy,” has lived by a simple, almost religious rule: buy, never sell Bitcoin (CRYPTO:BTC). Board Chairman Michael Saylor has turned its strict rules into a brand, a battle cry, and the company’s stock price has risen faster than its wealth.
SStrategy’s orange dots (the little markers Saylor posts on the X every time she adds a Bitcoin to the pile) have become a kind of crypto liturgy. The red dot has never appeared. Until now. Every time someone asks what happens when the price plummets, the crypto guru declares that he will simply buy more Bitcoin.
And from The Wall Street Journal’s “This Year’s Hottest Crypto Trade Is Collapsed”:
Michael Saylor pioneered this movement in 2020, transforming a small software company then called MicroStrategy into the Bitcoin whale now known as Strategy. But now, as the prices of Bitcoin and Ether are falling, so are the stocks of Strategy and its imitators. The strategy was worth about $128 billion at its peak in July. It is now worth about $70 billion.
The decline has also hurt big-name investors, including Peter Thiel, a prominent venture capitalist who has backed several crypto financial companies, as well as individuals who followed the evangelists into these stocks.
“This whole concept makes no sense to me. You’re just paying $2 for a $1 bill,” said Brent Donnelly, president of Spectra Markets. “Ultimately, premiums will be compressed.”
When crypto treasury companies first emerged, they provided an avenue for investment to institutional investors who previously did not have easy access to cryptocurrencies. Cryptocurrency exchange-traded funds, which have become available over the past two years, now offer the same solution.
And the Financial Times says:
Strategies shares fell after the Bitcoin champion deployed US dollar reserves to fund dividends and warned it could incur a $5.5 billion loss if the cryptocurrency’s price does not recover this year…
The company is financing its Bitcoin purchases through a mix of debt and equity instruments, many of which promise to pay dividends to investors.
But Saylor’s methods have come under pressure as the price of the world’s largest cryptocurrency has fallen from an all-time high of more than $126,000 in early October to about $85,000 in just over a month.
Strategy announced on Monday that it had created a $1.44 billion “U.S. dollar reserve” to fund dividends. The reserves are funded by proceeds from stock sales, and the Nasdaq-listed company said it aims to maintain dollar reserves that cover “at least 12 months’ worth of dividends” and eventually expand to cover “more than 24 months’ worth of dividends.”
Strategy stock narrowed its intraday decline from a peak of 12.2% to close 3.3% lower on Monday. The company’s stock has fallen about 41% this year as investors question the viability of the company’s business model.
The company buys Bitcoin by issuing stocks, convertible bonds, and new preferred stock products. The move highlights how Strategy is preparing for further declines in its stock price. The company will need cash to repay $8.2 billion worth of convertible debt holders, especially if the stock price does not rise.
And according to the accelerating rout, this fall did not happen in isolation. You got everything you want in crypto from The Economist two weeks ago. Now it’s sinking:
In recent years, the crypto industry has gone from being the subject of mainstream financial derision and outright hostility from regulators to being widely accepted and encouraged. Banks and asset managers are launching products, and the latest cast of US regulators are crypto enthusiasts. In October, Bitcoin’s market value reached $2.5 trillion.
As strange as it may seem, these wins now spell trouble for cryptocurrencies. Prices have fallen, with Bitcoin falling from an all-time high of around $126,000 in early October to just over $92,000. The lack of a new bullish narrative to justify further price increases is a challenge for speculative assets that do not generate income and rely solely on expectations of future capital gains. And the ripple effects of this decline will be felt far beyond the industry, as wider acceptance deepens the connections between cryptocurrencies and other markets…
In 2020 and 2021, lockdowns and big finances combined with an increase in crypto trading offerings by mainstream brokers…
Today, investors have no problem getting their hands on Bitcoin. Brokers provide access to a variety of crypto assets to anyone with a phone. Some large investors are distancing themselves. Crypto enthusiasts rejoiced this month with the news that the Czech Central Bank had purchased $1 million in Bitcoin and other cryptocurrencies. But this pales in comparison to the $171 billion in bank reserves. And most central banks still deny including digital assets as defense assets. Therefore, there appears to be limited scope for volume growth.
Another cost of victory is that the pain of the crypto crash will be felt more widely than before. The investors most exposed to the recent downturn are those who acted as if the boom would never end… On October 10, approximately $19 billion in leveraged crypto positions were wiped out after Trump announced new 100% tariffs on China (the tariffs were lifted a few days later). No one knows how much leverage remains, but the further the price falls, the greater the risk of a continuous crash.
Adding to China’s problems, the Chinese government has just announced that it will tighten its crackdown on cryptocurrencies. From Coin Speaker on November 29th:
China is taking new steps to crack down on crypto payments as regulators warn that digital assets are once again creating risks for the country’s financial system. Officials say trading activity has resurfaced despite previous restrictions and they are now preparing stronger enforcement to curb the use of cryptocurrencies and stablecoins in payments and transfers.
they are [China’s central bank and other regulators] Although the 2021 ban drove underground crypto trading, it was agreed that the market is active again. The market is currently experiencing an increase in fraud, illegal financing schemes, and unregulated cross-border transactions.
Officials reiterated that digital assets are not legal tender and cannot be circulated as currency in the country. It warned that using it for payments or investments constitutes illegal financial activity.
By way of background, some stablecoins have been a major concern because their anonymity makes it difficult to identify users or trace funds.
It is true that China has increased its crackdown on fraud, and for obvious good reasons, increasing harassment from Thailand. But this “fraud” campaign is more likely aimed at stopping capital flight, tax evasion and money laundering.
Returning to the idea that the strategy does not liquidate Bitcoin, a serious problem has passed. Michael Shedlock explained:
technical failure
Bitcoin fell sharply from over $126,000 to $80,000.
Bitcoin then rebounded to around $93,000 and then declined.
If Bitcoin fails at this level, support exists at $75,000, $55,000, and $49,000. 40,000 and 25,000 if that fails.
There are other things that have been pointed out.
Remember when Michael Saylor said he would never sell Bitcoin?
– From day one, this clown said he was responsible for the entire industry$MSTR It is Ponzi by definition. They had to sell shares to repay loans with current investors
now they will dump $BTCpic.twitter.com/WoXu7NH8zR
— Crypto Bitlord (@crypto_bitlord7) December 2, 2025
There are several tweets on Twitter shouting about the damage.
JP Morgan suspected of participating in market manipulation🚨
🤔🩳 JP Morgan sells MSTR shares and increases margin requirements. From 50% to 95%, insists on excluding Strategy from MSCI index, has a history of BTC price manipulation, demands price reduction, waiting for -35% drawdown… pic.twitter.com/t6gP3yc5uz
— X Market News🚨 (@xMarketNews) December 2, 2025
In my opinion, “women protest too much” level of cheerleading and the inevitable success:
Remember, I absolutely cannot stand when MSTR is trading at $1,000.
— ₿itcoin Therapist (@TheBTCTherapist) December 2, 2025
In contrast to Shedlock, some believe that Bitcoin has a lower bound.
Bitcoin has never been lower than electricity costs
Current electricity bill = $71,000 pic.twitter.com/E0lBK7TB15
— CoinCompass (@CoinCompassHQ) December 1, 2025
Also, Vanguard just allowed the purchase of a Bitcoin ETF, and there’s a lot of excitement on Twitter about countering the Bitcoin chart downer. I have to assume that most people who turn coins into hearts have already made hearts outside of Vanguard.
But there is also another interpretation.
🚨 Insight: Bitcoin mining difficulty is expected to increase as hash prices are near record lows. pic.twitter.com/grHta93AQI
— Cointelegraph (@Cointelegraph) November 30, 2025
Needless to say, this episode is still a work in progress. stay tuned.
