Replaying 1929: The Historical Cycle of Bitcoin Treasury Companies and Investment Trusts

Author: Be Water

Compiled by: Shenchao TechFlow

The Roaring Twenties

In financial markets, fervent sentiment often has powerful vested interests driving it, even when that fervor approaches madness—just as was the case in 1929. For anyone commenting on or writing about current financial market trends, this is undoubtedly a warning. However, there are indeed some fundamental rules that cannot be ignored, and the cost of ignoring these rules is far from trivial. The most affected are often those who scoff at all current warnings.

------JK Galbraith, “Parallel Lines of 1929”, The Atlantic, January 1987, before the Great Crash of 1987

While Bitcoin treasury companies are currently just a small blemish in the vast financial matrix—and it seems somewhat absurd to scrutinize them given that Fartcoin has a market cap of $1.5 billion—they bear a striking resemblance to the investment trusts of the 1920s, revealing a recurring pathological speculation that transcends their current scale. In fact, they provide a universal blueprint for the pervasive reflexive bubbles. Thus, the mechanisms shared between trusts and treasury companies offer a perfect lens through which we can more broadly understand financial history and the dynamics currently unfolding within the financial matrix.

In Part One of “Speculative Attacks”, we explored how Michael Saylor's MicroStrategy weaponized Wall Street's own financial engineering to combat the traditional financial system by subverting risk alchemy; now hundreds of companies are racing to replicate his blueprint.

Part Two of “Speculative Attacks” examines the similarities between today’s Bitcoin treasury companies and the "investment trusts" of the 1920s. These trusts were initially a distorted version of highly regarded British investment tools, but became corrupted as American financiers leveraged them. By mid-1929, the trust frenzy reached its peak. Goldman Sachs Trading Corporation became the "MicroStrategy" of its time, with new trusts being launched at a rate of one per day, as investors were eager to pay two or even three times the value of their underlying "scarce" assets.

However, how could a futuristic concept like Bitcoin treasury companies possibly relate to the financial trusts of the 1920s? In that era, computer technology was not yet widespread, let alone blockchain, and the Securities and Exchange Commission (SEC) had not even been established, much less begun to curb Wall Street's flashy abuses. At first glance, the structural differences between the trusts of 1929 and today’s treasury companies seem both obvious and inevitable.

We believe these differences are not fundamentally important. Each era in financial history exhibits its unique characteristics within its specific context. Overemphasizing superficial distinctions is a rationalization of humanity's long-standing warnings about emerging financial risks and excesses based on historical lessons. Market participants treat each event as if it were humanity's first encounter with financial alchemy, ignoring the "warnings for posterity" recorded in “The Great Mirror of Folly” (1720). However, this approach is akin to preparing for the last war rather than striving to master enduring principles of warfare and applying them to current battles.

In recent decades, this pattern has been particularly evident across multiple domains, from "private credit" to trillions of dollars in negative-yield bonds, to the real estate bubbles that have historically ravaged Australia, Canada, Sweden, and the UK (which now seem to be receding). Taking these real estate bubbles as an example, market participants cite the lack of complex American derivatives (such as CDOs, NINJA loans), rampant fraud, non-recourse loans, and bank failures during the 2008 financial crisis to allay concerns. Just as purists demand that champagne must come from specific hills in France, many today believe that a real estate bubble only exists if it exhibits the typical characteristics of the subprime crisis popularized by The Big Short—such as CDO cube managers dining on sushi in Las Vegas.

Excerpt from the movie The Big Short

The result is a literalism of history: structural differences are seen as evidence of safety, while in fact, these differences are often exaggerated, misleading, or entirely irrelevant. For instance, in practice, each of the aforementioned countries has merely developed its unique mechanisms that perform similar alchemical functions.

Supporters of Bitcoin treasury companies also make similar arguments, claiming that comparing Bitcoin treasury companies to the investment trusts of the 1920s is fundamentally flawed: these trusts were built on opaque pyramid structures, hidden leverage, and unregulated market fees, while Bitcoin treasury companies are transparent single-entity companies without layers of management fees, bound by modern SEC disclosure rules, and holding currently ideal market value assets. In short, they argue that any superficial similarities obscure profound differences in structure, agency relationships, and information flow.

While we agree with some of these points—even if not all—we arrive at a different conclusion. The striking fact is not that there are such vast differences between Bitcoin treasury companies and the trusts of the 1920s, but rather that the same fundamental dynamics are repeatedly emerging—making the deeper similarities between them impossible to ignore. Both exhibit massive net asset value premiums, "value-adding magic," and reflexive feedback loops, in which purchases drive up the prices of underlying assets, thereby enhancing their own value and borrowing capacity. Investors in both eras embraced "wise" long-term leverage and the enticing promise of easy profits through financial alchemy to capitalize on "sure bets."

These patterns represent not merely historical similarities; they reveal the eternal constants of human nature and financial reflexivity, which are the roots of credit bubbles, transcending the limits of time and assets. Therefore, the fates of these early trusts provide an objective lens through which we can examine not only the emerging phenomenon of Bitcoin treasury companies but also gain insight into the recurring financial alchemy that has defined bubble formations for centuries.

Twitter/X: @bewaterltd

Not investment advice. For educational/informational purposes only. Please see the disclaimer.

"Investment Trusts Multiply Like Locusts"

The explosive growth of Bitcoin treasury companies mirrors that of the investment trusts of the 1920s, both gold rushes stemming from a perfect storm of greed: a strong demand from investors for scarce assets gave rise to net asset value premiums, while promoters rushed to monetize them. If Goldman Sachs could reap huge profits from its trusts in the 1920s, why couldn't other companies do the same? If MicroStrategy could monetize its net asset value premium, why shouldn't other companies follow suit?

Galbraith recorded the explosive growth of trusts in the 1920s:

In 1928, it was estimated that 186 investment trusts were established. By early 1929, the rate of establishment of these investment trusts was about one per working day, with a total of 265 trusts established that year.

The scale of funds raised was equally remarkable, accounting for 70% of all funds issued in the 1920s. In just August and September of 1929, new trust issuances reached $1 billion—equivalent to $20 billion in today's purchasing power, or 130 billion in today's economic total:

In 1927, these trusts sold approximately $400 million worth of securities to the public. In 1929, they sold an estimated $3 billion worth of securities. This accounted for at least one-third of all new capital issued that year.

By the fall of 1929, the total assets of investment trusts were estimated to exceed $8 billion, growing about 11 times since early 1927.

Source: DeLong/Shleifer

Frederick Lewis Allen's account corroborates Galbraith's observations; in “Only Yesterday: An Informal History of the 1920s”, Allen vividly describes how "investment trusts multiplied like locusts":

It is said that there are now nearly five hundred such trusts, with a total paid-in capital of about three billion dollars, holding stocks worth about two billion dollars—many of which were purchased at current high prices. Among these trusts are both honest, shrewd companies and wildly speculative enterprises founded by ignorant or greedy promoters.

The Cambrian Explosion of Bitcoin Treasury Companies

Today, Bitcoin treasury companies exhibit a strikingly similar pattern; as companies around the globe race to replicate MicroStrategy's success, new entities are launched weekly. The "Cambrian explosion" of Bitcoin treasury companies can be tracked in real-time through web data dashboards:

Source: BitcoinTreasuries.net

The Golden Age of Fraud

The onset of innovation quickly evolved into exploitation. Galbraith and Allen emphasize that this was not an era of individual bad actors, but rather a time of systemic opportunism driven by soaring prices and ethical deficiencies.

The most profitable role in the trust frenzy was not that of the investors, but of the promoters. Galbraith clearly points out that insiders, by charging fees, could both preemptively capture value and continuously extract value, while the public buyers bore the ultimate risk:

The public's enthusiastic pursuit of investment trust securities brought the greatest returns. Almost without exception, people were willing to pay far above the offering price for them. The sponsoring company (or its promoters) typically received a certain quota of stock or warrants, giving them the right to purchase shares at the offering price. They would then immediately sell at a higher market price for profit.

Newly issued stocks were usually sold to insiders or favored clients at prices slightly above net asset value, but many newly issued stocks quickly rose to substantial premiums. For example, Lehman Brothers Corporation received a significant oversubscription at $104 per share, equivalent to purchasing $100 worth of assets (but note that its management contract stipulated that 12.5% of profits be paid as management fees to Lehman Brothers; its true net asset value might have been only $88). After going public, the fund immediately rose to $126 per share. The organizers profited not only from the $4 per share spread and future high management fees but also became significant initial investors on better terms than the public. Moreover, they retained a right—worthless when the fund traded at a discount but extremely valuable when it traded at a premium—to charge management fees in the form of purchasing new shares at current net asset value.

Similar to the trusts of the 1920s, today’s Bitcoin treasury companies often employ similar arrangements—founder stock allocations, internal stock options, and incentives for promoters and podcasters. However, this time, these mechanisms are publicly disclosed under SEC rules, which were designed to address the abuses of the 1920s. But transparency does not eliminate risk nor dissolve incentive distortions:

In the 1920s, the speculative frenzy and the rapid establishment of trust companies provided excellent cover for the abuses of ill-intentioned promoters. The proliferation of improper investment trust and holding company structures exemplified what Galbraith considered typical manifestations of financial excess in the 1920s. He noted that American enterprises "embraced an extraordinary number of promoters, corruptors, swindlers, impostors, and fraudsters," describing it as "a tidal wave of corporate theft." Allen also concurred:

As long as prices were rising, people could comfortably indulge in various dubious financial behaviors. The great bull market concealed countless evils. For promoters, it was a golden age, and "his" name was legion.

These observations resonate with other periods of financial speculation and fraud, including today's "Golden Age of Grift," as well as historical events like John Law's Mississippi Bubble—discussed in our series on "Risk Alchemy" and satirically recorded in “The Great Mirror of Folly” (1720). But behind outright fraud lies another risk—perhaps less obvious but equally dangerous: the inherent structural risk alchemy in the design of trust capital structures.

Financial Alchemy

Some call it alchemy, and I call it valuation. ------MicroStrategy CEO Phong Le

Source: MicroStrategy

MicroStrategy provides a video and chart showcasing the "leverage effect" of its capital structure's different tiers (stocks, convertible bonds, preferred stocks, etc.)—essentially amplifying exposure to Bitcoin price movements:

Michael Saylor rebuffed comparisons with closed-end funds like GBTC (see Part Two), pointing out that MicroStrategy, as an operating company, has greater flexibility:

Sometimes I see… a Twitter analyst say, oh, this is like when GBTC and Grayscale's P/E ratio fell below mNAV. They overlook one thing: Grayscale (GBTC) is a closed-end fund. And we are an operating company.

[Funds like GBTC]… do not have the operational flexibility to manage their capital structure… they do not have the option to refinance or take on leverage or sell securities, buy securities, restructure capital, or buy back their own stock.

An operating company like MicroStrategy has greater flexibility. We can buy stock, sell stock, restructure capital, and also borrow to fill or resolve funding gaps.

However, this distinction overlooks a certain historical irony: the investment trusts of the 1920s pioneered capital structure innovations that make today’s Bitcoin treasury companies so attractive to investors and created the same reflexive dynamics we observe today.

As Galbraith recorded, investment trusts evolved into something far more complex than simple pooled investment vehicles like GBTC—they became a flexible corporate structure, precisely the kind that Saylor boasts about today:

Investment trusts effectively turned into investment companies. They sold their securities to the public—sometimes just common stock, more often common stock, preferred stock, bonds, and other types of debt instruments—and then management invested the proceeds at their discretion. By selling non-voting stock to common stockholders or transferring their voting rights to voting trusts controlled by management, they could prevent common stockholders from interfering with any possible actions by management.

The Investment Company Act of 1940 explicitly restricted these practices because they had proven to be very effective and very dangerous in the speculative markets leading up to the 1929 crash. When Greyscale and its lawyers constructed GBTC, they likely chose this form (at least in part) to avoid registration under the 40 Act. Funds like GBTC cannot deploy the full suite of tools available to MicroStrategy, not due to inherent limitations, but as a result of policies deliberately crafted by the SEC to prevent a repeat of the excesses and consequences of the 1920s investment trusts.

The capital structure of the trusts of the 1920s is nearly indistinguishable from today’s MicroStrategy: both issue securities—stocks, bonds, convertible bonds, and preferred stocks issued at a premium to mNAV—to attract investors with different risk ("leverage effect") preferences and return demands. For example, convertible bonds, which are central to MicroStrategy's financing strategy, were also a hallmark of the trusts of the 1920s recorded by Allen:

Converting new bonds issued by the trust into stock or attaching warrants to purchase stock at some future date gave them an acceptable speculative flavor, and this practice became fashionable.

During the economic boom of 1929, many investment trusts' business models were rooted more in financial alchemy than in asset management. The complex capital structures and layers of leverage were not merely passive financing tools to enhance returns but were at the core of the enterprise. Their goal was to create a continuous supply of speculative securities to satisfy the insatiable public demand. The motivation for this demand stemmed from a belief—captured by Galbraith—that the stocks purchased by the trusts had acquired some "scarcity value," and that the most sought-after stocks were about to disappear entirely from the market.

However, what the public was buying was not merely a diversified portfolio of scarce stocks but a bet on the performance of the trust's own financial alchemy: the true "product" was the trust's own securities and net asset value. They functioned like alchemical laboratories, transforming the public's desire for speculative gains into newly conjured securities.

Wise Long-Term Debt

This MicroStrategy-like strategy allowed trust managers in the 1920s to obtain high-quality leverage: long-term corporate bonds (sometimes lasting 30 years), rather than margin loans or "callable" loans that required immediate liquidation. In theory, these extended maturities allowed trusts to maintain leverage throughout the business cycle without facing immediate refinancing pressures, while their relatively low yields reflected investors' general complacency and systemic risk mispricing.

Lyn Alden has made similar observations about contemporary Bitcoin treasury companies:

Compared to hedge funds and most other types of capital, publicly traded companies can obtain better leverage. Specifically, they have the ability to issue corporate bonds… typically for many years. If they hold Bitcoin and its price drops, they do not need to sell prematurely. This makes them more capable of withstanding market volatility than entities relying on margin loans. While there are still some bearish scenarios that could force companies to liquidate, these scenarios would lead to bear markets lasting longer, making them less likely.

Long-Term Debt and Reflexivity

Lyn's analysis—while accurate for any company—overlooks the systemic risks that may arise when these "safer" leverage structures proliferate. Just as 30-year fixed-rate mortgages failed to prevent the 2008 financial crisis, any long-term debt cannot inherently eliminate systemic risk and may even exacerbate it.

During the boom period of the late 1920s, financial alchemy amplified returns through the same self-fulfilling prophecies that benefit today's Bitcoin treasury companies: rising asset prices and mNAV premiums led to higher leverage and "leverage effects," further driving up asset prices. But this reflexive cycle rendered the system fundamentally unstable. As we have seen, these complex capital structures are far from mere passive financing tools—they played an indispensable role in fueling the astonishing inflation of bubbles and their subsequent collapses.

Just as cheap hurricane insurance spurred a building boom after several calm hurricane seasons, seemingly safe debt maturing regularly during a bull market may encourage people to increase leverage, creating larger positions and asset inflation, ultimately amplifying rather than dampening downward volatility. Newly discovered "affordable" forced liquidation protections triggered an astonishing expansion of risky behavior in coastal areas—until the inevitable hurricane arrived, causing the insurance market itself to collapse. When hundreds of companies adopt the same capital structure and business model, engaging in "one-way bet" speculation, what may seem like prudent practices in individual cases can easily become collective instability. In financial "progress," dosage determines success or failure.

Path Dependence and Pyramid Schemes

Just as some extreme mortgages designed to default at the first payment in 2005-2006, many investment trusts were effectively variations of pyramid schemes as the 1920s bubble neared its end—relying on new inflows of funds or rising prices to meet obligations—even while holding diversified portfolios of dividend-paying stocks and interest-bearing bonds:

Some of these companies… were so capitalized that they could not even pay preferred stock dividends from the income of the securities they held, relying almost entirely on the hope of profits.

This created an unstable dependency: to pay bondholders and preferred stockholders their returns, trusts either issued new shares (relying on their mNAV premiums) or hoped for future appreciation of their portfolios. These two mechanisms intertwined: portfolio earnings drove up mNAV premiums, which in turn prompted the issuance of more shares, funding further expansion of the portfolio.

Essentially, they used funds from new investors or future price appreciation to pay off existing debts—this is the typical structure of a pyramid scheme—making them vulnerable to market downturns when new capital dried up and portfolio earnings evaporated, leading to a collapse of their mNAV premiums in a self-reinforcing spiral.

Since Bitcoin treasury companies (currently) have no cash flow, they tend to follow similar strategies, raising funds from investors to pay off debts:

Like the trusts of the 1920s, this pyramid-like strategy operates effectively when Bitcoin appreciates, companies maintain their net asset value (mNAV), and capital markets remain open to them. However, if all these conditions deteriorate simultaneously over an extended period—potentially due to over-leveraged Bitcoin treasury companies themselves—these companies will face the same structural vulnerabilities that devastated the trusts of the 1920s.

In fact, one major difference between the investment trusts of the 1920s and today’s Bitcoin treasury companies lies in the assets they actually hold. These trusts held (seemingly) diversified portfolios of dividend-paying stocks and interest-bearing bonds, generating cash flows to fund their preferred stock and bond payments—at least during the Great Depression, when the pervasive credit bubble linked them.

While "hyperbitcoinization" and "Bitcoin banks" may one day have the opportunity to change this dynamic, Bitcoin currently generates neither cash flow nor dividends nor interest. This creates a structural vulnerability that the trusts of the 1920s, despite their many flaws, never faced. Bitcoin treasury companies lack even the income sources of the 1920s trusts, making them more susceptible to this pyramid dynamic rather than less. Even in the context of a long-term bull market where Bitcoin appreciates tenfold, their viability depends entirely on path dependence, sustained appreciation, credit channels, and investor enthusiasm. Breaking this chain—potentially due to the over-saturation of leveraged Bitcoin treasury companies themselves—could ultimately lead to structural collapse, a topic we will discuss in the upcoming fourth part of this series.

Trust Collapse and the 1929 Financial Crash

The famous Yale economist Irving Fisher once said that just before the 1929 stock market crash, stock prices had reached "permanently high levels." Fisher's statement embodies the euphoric confidence typically characteristic of market peaks. Even the most fervent Bitcoin bulls should be wary of similar sweeping assertions, at least in the short term:

Fisher's famous quote about the market being at "high levels" is now widely known, but the lesser-known context reveals a deeper story. He was actually defending investment trusts, arguing that they were an important support for stock valuations, just as today Bitcoin supporters mention the built-in demand of Bitcoin treasury companies. The New York Times reported at the time:

Professor Fisher delivered a speech on the subject of investment trusts and defended them against recent attacks that blamed investment trusts for many of the current ills.

Fisher defended trusts on the grounds that these tools were awakening public awareness of the advantages of stocks over bonds and providing investors with a superior structure for gaining exposure to stocks—just as Bitcoin funding advocates today claim that MicroStrategy offers greater "leverage" than directly holding Bitcoin, and that Bitcoin itself is superior to traditional financial assets like fiat currency, stocks, bonds, and real estate:

I believe the principles of investment trusts are sound, and public participation in them is reasonable, but with full consideration of the character and reputation of the managers. To a large extent, it is due to the influence of the investment trust movement that the public has gradually come to realize that stocks are more attractive than bonds. Moreover, I believe that, overall, the operations of investment trusts help stabilize the stock market rather than exacerbate its volatility.

Reflexivity is Bidirectional!

The stock market crash was not merely a price event—along with the reversal of reflexive cycles, the forces driving the stock market boom amplified the downturn in asset markets and the real economy. The investment trusts that Irving Fisher had vigorously advocated just a week prior, claiming they could ensure stock values "permanently remain high," became the main drivers of this crash:

It is now evident that investment trusts, once considered pillars supporting the economy at high levels and intrinsic defenses against collapse, have now become profound weaknesses. Just two weeks ago, people were still enthusiastic about leverage effects, but now it has completely reversed.

It swiftly wiped out the entire value of a typical trust company's common stock. As before, a typical small trust company's situation is worth contemplating. Suppose the public securities held by the company had a market value of $10 million at the beginning of October. Half of it was common stock, and half was bonds and preferred stocks. These securities were fully covered by the current market value of the securities they held. In other words, the market value of the securities contained in the trust company's portfolio was also $10 million.

This representative portfolio of securities held by such trusts might lose half its value by early November. (In later standards, many of these securities still had considerable value; on November 4, Tel and Tel's lowest stock price was still $233, General Electric at $234, and Steel at $183.) The new portfolio value of $5 million was barely enough to cover the previous losses of bonds and preferred stocks. Common stock would be left with nothing. Beyond those not-so-optimistic expectations, it is now worth nothing. This geometric cruelty is not an isolated case. On the contrary, it had a massive impact on the stocks of leveraged trusts. By early November, most of these trusts' stocks were nearly unsellable. Worse still, many of these trusts' stocks traded in over-the-counter markets or outside exchanges, where buyers were scarce and trading was thin.

Frederick Lewis Allen's account again corroborates Galbraith's observations:

However, the fear did not linger long. As the price structure collapsed, people suddenly rushed to escape. By 11 a.m., the exchange traders were frantically "selling off." Even before the lagging ticker could predict the situation, phone calls and telegrams had already transmitted news of the market's impending bottom, and the number of sell orders doubled. Leading stocks fell by 2, 3, or even 5 points between two sell-offs. Down, down, down… Where were the bargain hunters who should have stepped in at such times? Where were the investment trust funds that should have buffered the market by buying new stocks at low prices? Where were the big speculators who claimed to still be bullish? Where were the powerful bankers who were thought to be able to support prices at any moment? It seemed there was no support. Down, down, down. The noise in the exchange hall had turned into a panicked roar.

Thus, we should never forget that reflexivity is bidirectional; it affects not only the market prices of underlying assets but also the fundamentals of those assets:

The most significant weakness of enterprises lies in their large holding companies and the new structures of investment trusts. Holding companies control vast sectors of utilities, railroads, and entertainment. Like investment trusts, these sectors are perpetually exposed to the destructive risks of reverse leverage. In particular, operating companies' dividends are used to pay interest on upstream holding company bonds. A disruption of dividends means bond defaults, bankruptcies, and structural collapses. In such cases, the temptation to cut back on capital investments in operating plants to continue paying dividends is clearly very strong. This exacerbates deflationary pressures. And deflation, in turn, suppresses profits and leads to the collapse of the corporate pyramid. When this happens, further layoffs become inevitable. Income is earmarked for debt repayment. Borrowing for new investments becomes impossible. It is hard to imagine any corporate system more suited to perpetuate and exacerbate the spiral of deflation…

The stock market crash was also an extremely effective way to exploit the structural weaknesses of companies. Operating companies at the end of the holding company chain were forced to cut back on spending due to the stock market crash. Subsequently, the collapse of these systems and investment trusts effectively destroyed borrowing capacity and the willingness to invest in loans. The long-seeming pure trust effect quickly transformed into declining orders and rising unemployment.

This crisis not only destroyed paper wealth but also exposed bad investments in the real economy that had been masked by debt-driven asset price inflation, forcing unsustainable business models and debt structures into painful liquidation.

Even in the context of a structurally long-term bull market, Bitcoin treasury companies face the same risks. If Bitcoin were to drop significantly (potentially due to the over-leveraging and speculative behavior of the treasury companies themselves), and asset trading prices remained below net asset value for an extended period, common stock could be completely wiped out like the trust shares of 1929, even if their leverage was "safe." Furthermore, as we will discuss in Part Four, the surge and subsequent collapse of Bitcoin treasury companies could even negatively impact the adoption of Bitcoin itself for a time.

Born of mNAV, Died of mNAV

If we are an operating company and our trading price is below net asset value, then we can monetize it—this is good for me.

---Michael Saylor

Saylor's confidence in monetizing net asset value discounts (which may be reasonable for MicroStrategy) reflects the same logic that trust managers in the 1920s used to justify buybacks, only to find that when liquidity disappeared from the entire ecosystem and selling pressure dominated, this support strategy was ineffective.

These trusts discovered that buying back stock in the face of investor sell-offs and credit tightening was entirely different from issuing stock when investors were buying. To support stock prices, these trusts began buying back shares at prices below net asset value—Bitcoin treasury companies are likely to adopt this strategy, but the outcomes for most companies are similarly disappointing:

The stabilizing effect of the investment trusts' massive cash resources also proved to be an illusion. In early autumn, investment trusts had ample cash and liquid resources… but now, as the effects of reverse leverage gradually emerged, the management of investment trusts was more concerned about the plummeting value of their own stocks than the adverse fluctuations in the overall stock market…

In this situation, many trusts desperately tried to support their stocks with their available cash. However, there is a huge difference between buying back stocks when the public wants to sell and buying stocks when the public wants to buy (as Goldman did last spring). At that time, the public wanted to buy, and the resulting competition pushed prices up. Now, cash is flowing out, stocks are flowing in, and stock prices are either not significantly affected or the impact is short-lived. Financial strategies that seemed clever six months ago have now become fiscal self-immolation. Ultimately, buying back one's own stock is the opposite of selling stock. Companies typically grow by selling stock.

As the crisis deepened, mNAV continued to trade at a discount, and trust companies exhausted their remaining cash reserves, desperately (and ultimately counterproductively) trying to support plummeting stock prices:

However, none of this was immediate. If someone is a financial genius, trust in their genius does not disappear immediately. For a beleaguered but unyielding genius, supporting their company's stock still seemed a bold, imaginative, and effective way to go. In fact, it seemed the only option to avoid a slow but inevitable death. Therefore, within the limits of available funds, the management of trust companies chose a faster but equally inevitable death. They bought stock that was worthless to themselves. It is common for people to be deceived by others. In the fall of 1929, perhaps for the first time, people deceived themselves on a massive scale.

Conclusion

The investment trust frenzy of the 1920s provides a comprehensive blueprint for understanding financial bubbles built on leverage, reflexivity, and the magic of premium/net asset value growth. Initial financial innovations quickly evolved into speculative tools, promising easy wealth through financial alchemy. When the music stops, the reflexive mechanisms that had pushed prices to euphoric heights accelerate their catastrophic decline.

This bears a striking resemblance to today’s Bitcoin treasury companies—from the surge of new entities to reliance on net asset value premiums to the use of long-term debt to amplify returns. As we explored in “Tower of Babel”, the main root of the 2008 financial crisis was not the subprime crisis, collateralized debt obligations (CDOs), or mortgage fraud—the primary cause of the collapse of 1920s investment trusts was not fraud, erroneous bets, lack of transparency and regulatory oversight, or their sometimes interwoven or pyramid-like holdings. They collapsed because of their success—built on "Alchemy of Risk"—which contained the seeds of future failure; Bitcoin treasury companies may be treading the same path toward the same cliff.

However, more concerning is that just as the trusts of the 1920s marked an era of speculative excess, Bitcoin treasury companies are symptomatic of today's "multiple currency inflation"—a deeper malaise distorting the current economic order. The recent emergence of a gold treasury company suggests that Saylor and Bitcoin treasury companies' speculative attacks on fiat currency are expanding beyond Bitcoin:

This broader assault on monetary orthodoxy may herald the emergence of a "flight to real value" (Flucht in die Sachwerte)—a wave that could escalate into a full-scale war against financial institutions. In fact, the actual business model of gold treasury companies—tokenizing commodity markets—could accelerate this trend by bringing more funds and credit into the real economy. This not only fails to safely contain inflationary pressures within the virtual casino of the financial matrix but could further exacerbate the inflation supercycle.

Coming Up: Can Bitcoin Break the Spell of Reflexivity?

In Part Four, we will explore whether Bitcoin's unique monetary properties—conflicting with the unprecedented large-scale printing by central banks—might enable leveraged funding companies to completely overturn historical patterns: triggering reflexive speculative attacks on fiat currency and creating a self-fulfilling prophecy akin to a "bank run." Or will they, like the investment trusts of the 1920s, embed the seeds of systemic vulnerability of the Bitcoin ecosystem within their structures?

Recommended Reading:

The Fall Trilogy by Pump.fun: Legal Hunting, Price Halving, Trust Collapse

"Stop Loss" Turnaround? Joe McCann Liquidates Old Fund, Shifts to New Sol Treasury Company Battlefield