Wall Street Sells Liquid Assets, Not Loss-Making AI Holdings

The Situation Awareness Fund, a $20 billion AI-focused investment fund, collapsed by approximately 67% in July due to leverage-related issues. The fund's strategy delivered explosive returns of 439% from early 2026 through June, but this came with extremely high leverage risk.

When the portfolio's value dropped by 10%, a $40 loss was triggered, shrinking the original equity to $60, a 40% decline in net asset value. To address the crisis, the fund sold its majority of publicly traded equity portfolio worth $16 billion.

This collapse did not result from the invalidation of AI's long-term investment thesis but rather from short-term funding constraints. Lenders and risk managers care about repaying loans next week, not whether AI forecasts for 2030 materialize.

When margin calls are issued, Wall Street tends to sell highly liquid assets such as Bitcoin for cash under pressure rather than offloading loss-making AI assets. The fund transferred the bulk of its public equity holdings to Citadel Investments, but funds lacking a single buyer must raise cash by selling a diversified mix of holdings.

Bitcoin emerged as the preferred option due to its unique liquidity characteristics, including continuous trading hours, globally unified pricing, and high liquidity typically exceeding that of private equities or specialized credit instruments. Even if the fund remained bullish on Bitcoin, the immediacy of spot transactions made it an effective tool for addressing cash shortages.