On July 30, the Situational Awareness hedge fund, founded by former OpenAI researcher Leopold Aschenbrenner, urgently liquidated a significant portion of its publicly traded stock holdings. This was reported by CNBC citing various sources.

Shares of Bitcoin mining companies held by the fund, according to reports as of March 31, saw a price increase of 18-30% following the most recent trading session.

A One-Night Deal

Citadel, led by Ken Griffin, purchased the Situational Awareness portfolio at a discount. As reported by Financial Times, Citadel's offer surpassed competing bids from Millennium Management and Jane Street. According to Bloomberg, both firms had been exploring these assets but ultimately did not participate in the final transaction. The deal was facilitated by Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup, as reported by Reuters.

The transaction was prepared in less than a day, with discussions starting Wednesday evening and terms being finalized by Thursday morning. By that time, the fund was already seeking a single buyer for the entire package, as selling shares piecemeal on a declining market could further harm its positions. Aschenbrenner had offered competitors the chance to buy shares valued at over $10 billion, according to The New York Times. The publication estimates that the crisis unfolded over approximately a day and a half.

The total value of the deal remains undisclosed. WSJ, Reuters, and FT reported on the bulk of the portfolio without providing specific figures. According to WSJ, Citadel primarily acquired positions bought on margin, while some unleveraged assets may have remained with the fund. Before the transaction, FT estimated Situational Awareness's public investments at approximately $16 billion, marking it as one of the largest deals in the U.S. equity market.

After the agreement, the fund retained assets worth around $10 billion, including private investments. NYT noted that Wall Street reacted with caution, recalling the earlier forced liquidation of a major player — the Archegos collapse in 2021, which resulted in significant losses for Credit Suisse.

Leverage Backfired

Sources from CNBC pointed out that Aschenbrenner's fund faced dual challenges. Investments in AI infrastructure suffered particularly, with shares of Nebius Group, Sandisk, Micron, and CoreWeave plummeting by over 35% by the end of July. Other significant positions, such as SK Hynix and Bloom Energy, were also affected. Concurrently, Situational Awareness's short positions on software companies, including Adobe, worked against it.

The fund had leveraged its positions, so the decline in stock prices devalued the collateral for its loans. Prime brokers, including Bank of America, Goldman Sachs, and JPMorgan Chase, demanded increased collateral. Reuters noted, however, it is unclear whether the banks had issued formal margin calls to the fund before the deal. Estimates of Situational Awareness's size vary; a CNBC source cited $45 billion at its peak in early July, while Bloomberg and FT placed it between $20 billion and $24 billion before the main collapse.

Just weeks separated record gains from the sell-off. In a letter to investors dated July 24, Aschenbrenner reported a 439% gain for January to June and a 1551% return since inception. He acknowledged that the tech sector's sell-off impacted his portfolio but described it as an opportune moment for buying. He encouraged clients to add more funds starting August 1.

According to WSJ, by the end of July, losses had reached approximately 67%. In the same letter, Aschenbrenner attributed the scale of the losses to actions by short sellers targeting Situational Awareness's positions.

Key private investments, including a stake in Anthropic, were not included in the agreement with Citadel, although the fund considered selling them. WSJ reported that management was close to finalizing a deal to sell a stake in developer Claude for approximately $3.5 billion to a consortium led by Greenoaks and Sequoia Capital, but the deal fell through. A representative from Situational Awareness told CNBC that reports about the sale of this stake were inaccurate.

Previously, Greenoaks and Sequoia Capital had already invested in Anthropic. In May, the company raised $65 billion at a valuation of $965 billion following investments led by Altimeter Capital, Dragoneer, Greenoaks, and Sequoia Capital. On June 1, the AI developer confidentially submitted a draft registration statement to the SEC on Form S-1. Aschenbrenner had indicated that this potential offering was one of the key events for the second half of the year.

Impact on Bitcoin Miners' Stocks

In trading on July 30, IREN saw the largest increase, rising by 30.54% to $38.26. Bitdeer climbed by 24.72%, Riot Platforms by 21.27%, CleanSpark by 21.07%, Core Scientific by 20.36%, and HIVE Digital by 18.34%.

Source: Yahoo Finance. Source: Yahoo Finance. Source: Yahoo Finance. Source: Yahoo Finance. Source: Yahoo Finance. Source: Yahoo Finance.

All six companies were listed in the fund's Form 13F filing on March 31:

  • IREN — 11.7 million shares valued at $401 million;
  • Core Scientific — 26 million shares valued at $389.1 million;
  • Riot Platforms — 11.5 million shares valued at $142.2 million;
  • CleanSpark — 12.3 million shares valued at $104.5 million;
  • Bitdeer — 3.44 million shares valued at $29.8 million;
  • HIVE Digital — 3.39 million shares valued at $6.4 million.

However, it is unclear whether the fund held these stocks immediately prior to the sale.

IREN's stock was also influenced by the company's own news. On July 20, the company announced new contracts for cloud AI services worth a total of $2.8 billion and raised its target annual revenue growth rate for AI Cloud by the end of 2026 to over $4 billion. Among its clients, the miner highlighted Microsoft, NVIDIA, Perplexity, Figure AI, and others.

It is worth noting that in July, Alphabet recorded its first negative free cash flow due to significant investments in AI infrastructure.