A $20 billion AI fund blew up in a month — and why Bitcoin often gets sold first

One of the buzziest AI hedge funds lost about two-thirds of its value in a single month and sold off most of a roughly $16 billion stock portfolio to survive. The fund is not known to have owned any Bitcoin. But its collapse is a clear window into a pattern beginners should understand: when big investors suddenly need cash, the first thing they sell is often whatever is easiest to sell — and that can be Bitcoin.

The fund, Situational Awareness, was built around companies powering the AI boom — chipmakers, data centers, power suppliers. It gained 439% in the first half of 2026 and grew to manage around $20 billion. Then in July it lost about 67% and ended up selling most of its public shares to Citadel, Ken Griffin's firm. Reporting suggested its lenders were demanding more collateral as AI stocks fell.

The reason a fund can unravel so fast is leverage — investing with borrowed money. Imagine putting in $100 of your own and borrowing $300 to buy $400 of stock. If that stock drops just 10%, you lose $40. The bank still wants its $300 back, so your own $100 has become $60 — a 10% dip turned into a 40% hit to you. When losses pile up, the lender can issue a “margin call,” demanding more cash or forcing you to sell.

Here is where Bitcoin enters the story. A fund facing a deadline can't always sell what it wants. Private company stakes take weeks to unload, some bonds are hard to trade under stress, and U.S. stock markets are closed at night and on weekends. Bitcoin, by contrast, trades 24 hours a day, everywhere, with a visible price. That makes it one of the easiest things to turn into cash quickly — so it can get sold even when nothing is wrong with Bitcoin itself.

This isn't just theory. U.S. investors had borrowed a record $1.5 trillion through margin accounts by June, and the Bank for International Settlements warned that a sharp reversal in AI enthusiasm could ripple through the wider financial system. When a shock hits, that borrowed money can force selling across unrelated assets at once.

For a newcomer, the takeaway is not to predict the next crash but to understand why Bitcoin's price sometimes falls for reasons that have nothing to do with crypto. A drop that starts in AI stocks or bank loans can reach Bitcoin simply because it is liquid and always open. That's also why using borrowed money to buy volatile assets is so dangerous: the same leverage that speeds up gains can force you out at the worst possible moment. This is information, not advice.