The leverage is the product, not a side effect

People describe the shares as bitcoin with extra risk attached. It is more accurate to say the extra risk is what the shares are for. The balance sheet exists to turn one unit of the asset's move into more than one unit of the equity's.

What leverage does across a cycle

In a rising market, borrowed money used to buy more of the asset magnifies the gain. In a falling one it magnifies the loss, and it adds a second risk the asset does not have: the need to service and refinance the debt when conditions are worst.

That makes the equity a cycle instrument. Its behaviour depends far more on where the cycle is than on anything the company does in a given quarter.

What I'm watching

• The asset's trend, which is the main input
• Debt maturities, and whether any fall due in a weak market
• The equity's moves against the asset's, which show how much leverage the market is pricing

Where I stand

Long, on the view that the cycle has further to run. The shares are the most direct expression of that view the listed market offers.

What would change my mind

A clear break in the asset's cycle. The leverage that works on the way up is the same leverage on the way down, and the equity is designed to feel it first.