"This month has disappointed you": A 25-year-old AI genius's confession of a $20 billion liquidation

Author: Gu Yu, ChainCatcher

Born in 2001, this genius teenager entered Columbia University at the age of 15 and graduated at 19 as the top of his class, earning degrees in mathematics, statistics, and economics. Leopold Aschenbrenner was once a core member of OpenAI's super alignment team, but was fired due to a security memo. He then founded a hedge fund and grew its management scale to over $20 billion within two years.

In July 2026, this 24-year-old, once hailed as the "AI prophet" by Silicon Valley and Wall Street, marked a significant pause in his myth by publicly announcing a 67% loss in a single month and being forced to liquidate approximately $16 billion in public market positions.

I. Letter to Investors: "We Disappointed You This Month"

On the last day of July, Aschenbrenner sent a brief and heavy letter to his fund's LP investors.

"We disappointed you this month," he wrote in the letter.

Behind this letter was the Situational Awareness fund's staggering loss of about 67% in July. According to the investor letter, even accounting for this month's losses, the fund's year-to-date return was still about 80%—but just two months prior, this figure was around 270%. In just two months, brilliance and collapse were separated by a plunge in the AI sector.

The losses forced Aschenbrenner to make a difficult decision: to sell the vast majority of his public market positions to Citadel, owned by Ken Griffin, to raise funds to meet margin calls from lenders. Reports indicated that Citadel acquired all of Situational's approximately $16 billion in public market positions at a discount in less than 36 hours.

Meanwhile, Situational had reached an agreement late Wednesday to sell its stake in AI giant Anthropic to a consortium of investors led by Greenoaks and Sequoia Capital for $3.5 billion—but by Thursday morning, the fund ultimately withdrew from the deal.

Aschenbrenner had his own interpretation in the letter. He attributed part of the blame to short sellers targeting the fund's positions, claiming they exacerbated the losses, and likened Situational's experience to a "bank run." He also informed investors that the fund had removed all leverage from its portfolio.

He made it clear: "I take full responsibility for these events." The fund was not closed, liquidated, or turned into a pure private equity fund; it would continue to operate in a mixed manner, but public positions would be temporarily fully paid. He promised to strengthen portfolio management, risk teams, and vigilance, turning "expensive scars" into valuable lessons, and expressed optimism about current opportunities—fundamentals were improving rapidly, and prices had dropped significantly.

II. The Collapse: AI Stock Plunge Combined with Leverage Backlash

The collapse of Situational was not without warning.

Unlike most diversified hedge funds, Aschenbrenner had almost bet everything on the AI revolution since founding the fund. He had repeatedly stated that AI would be the largest investment opportunity globally in the coming years, thus the fund was heavily invested in the AI supply chain, including AI computing power, data centers, and power infrastructure, while shorting some traditional software companies he believed would be impacted by AI, hoping to achieve excess returns through a "long AI, short traditional software" strategy.

During the sustained rise of AI stocks, this strategy performed exceptionally well. By the end of May, Situational's year-to-date return had reached approximately 270%, and its management scale rapidly expanded to over $20 billion, making it one of Wall Street's most watched star funds this year.

However, the problem was that the fund was built on a high leverage foundation. When the AI sector experienced a significant adjustment in July, many heavily held stocks fell simultaneously, while some previously established short positions in software stocks rose against the trend, putting pressure on both sides. As the fund's net value rapidly shrank, lenders began demanding margin calls, forcing Situational to sell some assets to supplement margin, which further depressed stock prices, creating a vicious cycle of "stock price decline—margin call—forced sale—continued decline."

More critically, many of the stocks held by Situational had limited liquidity. When the market realized the fund was facing deleveraging pressure, some institutions began to establish short positions against its heavily held stocks, further amplifying market volatility. Aschenbrenner subsequently likened this event to a "bank run" in the investor letter, believing that when all counterparties attempt to exit first, liquidity would quickly evaporate.

Ultimately, the fund did not wait for the market to stabilize. Just the day after Situational completed a large-scale deleveraging (July 31), the AI sector experienced a strong rebound, with SanDisk rising 25.99% in a single day and CoreWeave rising 21.51%. This moment became the most dramatic part of the entire event: Aschenbrenner did not misjudge the long-term value of AI; rather, he was eliminated by short-term market fluctuations under high leverage.

III. The "Past and Present" in the Crypto World

Few know that this "AI stock god" was once part of the crypto world.

In early 2022, Aschenbrenner joined the Future Fund team under FTX, founded by Sam Bankman-Fried. FTX was once the second-largest cryptocurrency exchange globally, valued at over $32 billion at one point. At that time, 19-year-old Aschenbrenner immersed himself in the "effective altruism" (EA) movement, participating in evaluating funding projects, hoping to invest hundreds of millions of dollars into the areas with the most potential to improve human welfare.

However, in November 2022, FTX collapsed due to misappropriation of customer funds and debt issues, ultimately filing for bankruptcy. Founder SBF was sentenced to 25 years in prison, and the ethics he touted of "earning to give" were later described by himself as "mostly a front."

Aschenbrenner left the institution just before FTX's collapse. This experience at the center of the world's largest financial scandal made him acutely aware of the complexities and risks of the market.

Yet the irony of fate is that after leaving FTX, Aschenbrenner joined OpenAI's super alignment team to study AI safety—this job was originally meant to "hit the brakes" on superintelligence. In April 2024, he was fired for writing a security memo warning of insufficient security at OpenAI, under the pretext of "leaking." A month later, the super alignment team announced its dissolution.

Just two months after being fired, Aschenbrenner published a 165-page article titled "Situational Awareness: The Next Decade." He then turned around and founded the most aggressive AI acceleration fund in the market, betting everything on the AI frenzy—from someone who was "hitting the brakes" to becoming the one "pressing the accelerator" the hardest.

However, Aschenbrenner has not severed all ties with the crypto world. On the contrary, he has identified the intersection of AI and crypto infrastructure as an important investment direction.

According to SEC filings, the Situational Awareness fund has established a large position in the Bitcoin mining sector. Its holdings include Bitcoin mining companies such as IREN, Core Scientific, Riot Platforms, CleanSpark, and Bitfarms. As of the first quarter of 2026, the fund's public holdings had expanded from $5.5 billion to $13.67 billion.

Aschenbrenner's investment logic is not based on the expectation of rising Bitcoin prices, but rather on recognizing a deeper structural opportunity: the industrial-grade power infrastructure and grid access rights held by Bitcoin miners.

In the U.S., new data centers typically require three to five years to connect to the grid. Bitcoin miners already possess ready-to-use gigawatt-level industrial power capacity and long-term energy supply agreements. As AI companies compete for power capacity, the grid access rights held by miners are becoming more valuable than Bitcoin itself.

IV. Leverage, Cycles, and Circle Shrinking

The rise and fall of Situational Awareness reflects Silicon Valley's extreme style of betting on future technologies amid the global AI wave.

Fu Peng, chief economist at Bitfire Group, recently pointed out that the AI industry is currently in a transition period from midstream to downstream. The infrastructure layer, represented by Nvidia, has entered a mature stage, exhibiting characteristics of "old tech stocks," but the downstream application layer has yet to see a milestone breakthrough similar to ChatGPT. The next 10 to 18 months will be a transitional period for the industry cycle. The competition in the second half of AI will no longer be about burning money to build infrastructure repeatedly, but rather whether AI can generate stable payments, profits, and diffusion once it enters real industries as an efficiency tool.

Fu Peng also emphasized the risks of leverage: when the fundamentals of the industry are extremely certain and volatility is very low, the excessive accumulation of off-market financial leverage often becomes the invisible killer that triggers a crash. When deleveraging occurs, even if a company's fundamentals are sound, prices can still fluctuate violently.

This is precisely the lesson that Aschenbrenner bought with $20 billion.

Fu Peng also pointed out that current market funds are following a circle-shrinking logic, prioritizing the clearance of peripheral, highly elastic, and cash flow-deficient speculative assets, continuously concentrating on the most core and highest certainty targets. Pure liquidity assets like Bitcoin often digest valuation pressure ahead of traditional stock markets. Aschenbrenner's forced liquidation may not only signify the fall of a genius but could also become a watershed moment in this round of AI market.

Aschenbrenner admitted in the letter that the fund had removed all leverage. But this decision came too late—once leverage starts to unwind, its destructive power is irreversible.

This 25-year-old, emerging from the ruins of FTX, leaving amidst the controversies of OpenAI, created one of Wall Street's most astonishing wealth myths in two years, only to destroy it with his own hands in six days. His story is both a footnote to the frenzy of the AI era and a vivid warning against leverage and greed.