Corporate crypto treasury bubble risks are real but more nuanced than in past boom-and-bust cycles, analyst says

A wave of public companies is increasingly transforming into crypto treasury vehicles, raising billions to stockpile digital assets like BTC, ETH, SOL, and XRP that have fueled soaring valuations — and bubble fears. But while the risks are real, they're more nuanced than the collapse scenarios seen during crypto's last boom-and-bust cycle, according to Presto Head of Research Peter Chung."The recent surge in public entities adopting crypto asset treasury operations marks the dawn of a new era in financial engineering, comparable to Leveraged Buyouts (LBOs) in the 1980s or Exchange-Traded Funds (ETFs) in the 1990s," Chung wrote in a report on Thursday. "However, this phenomenon remains poorly understood outside a small segment of the crypto industry, often oversimplified as nothing more than a 'leveraged ETF trade.'"These companies are raising — or attempting to raise — funds to buy bitcoin and other cryptocurrencies to maximize shareholder value. Inspired by Strategy's playbook, the model has gained traction, especially in the U.S., which benefits from deep capital markets and sophisticated institutional investors, Chung said.They typically structure themselves as former operating firms, SPACs, or shell companies, repurposed to become vehicles for crypto accumulation, he explained. The funding methods they choose — private investment in public equity, at-the-market offerings, convertible bonds, or perpetual preferred shares — are tailored to their maturity stage and investor base, aiming to efficiently leverage crypto market volatility without pledging assets as collateral."Some crypto treasury companies may not prove to be diamond-handed, but this does not necessarily imply that the crypto market has become riskier," Chung said. "Managing this risk depends entirely on each company's ability to anticipate its cash flow needs and structure its capital to sustain and grow crypto holdings. The market will reward those that succeed with higher NAV multiples and penalize those that fail, which is no different from assigning higher multiples to companies that deliver stronger earnings growth."Addressing crypto treasury company risksThe rapid rise of crypto treasury companies has sparked concerns that their leveraged positions could trigger a new wave of forced liquidations if crypto markets turn bearish. Chung cited two main risks: collateral liquidation risk and activist-driven liquidation. However, he argued that these risks are more contained than those that fueled past crypto cycle collapses, such as the Terra ecosystem or Three Arrows Capital.On the collateral side, most crypto treasury companies are avoiding the use of pledged crypto as loan backing, Chung said. Of the $44 billion raised or pending among 12 key firms, only a third is debt-financed — and 87% of that debt is unsecured, according to Presto. Even in worst-case assumptions, the portion potentially collateralized is far smaller than the leverage levels seen in the 2021 cycle, making systemic liquidation risk from margin calls unlikely, as long as this discipline is maintained, Chung argued. "This does not imply that crypto treasury companies will never sell their crypto holdings, however. In unforeseen circumstances requiring urgent cash, with no alternative funding sources, crypto treasury companies may resort to liquidating crypto assets," he noted.The second concern is that crypto treasury companies trading at a discount to their net asset value could become targets for activist investors aiming to force asset sales, Chung explained. However, in practice, activists typically prefer less drastic tactics such as buybacks, tender offers, or market sentiment shifts to close NAV gaps, with liquidation used only as a last resort due to cost and complexity, especially during the early stage of a company's life cycle, he said.Comparisons to Grayscale's past GBTC premium during the 2021 bull market, which suggests that crypto treasury companies' premiums signal speculative excess and an impending bubble burst, also overlook key differences, Chung wrote. "While an overstretched premium could indicate a bubble, the limited historical data for most crypto treasury companies makes it difficult to determine what premium level qualifies as 'overstretched.' The recurring nature of the crypto asset accumulation implies some premium is justified." Moreover, unlike closed-end funds, crypto treasury companies can use capital markets to increase their crypto assets per share through innovative financing, he said.The corporate crypto accumulation raceThere are now 228 firms that have adopted some form of crypto treasury strategy for bitcoin alone, with Tether-backed Twenty One, Nakamoto, Trump Media, and GameStop recently joining the likes of Metaplanet, Semler Scientific, and KULR in adopting the bitcoin acquisition model pioneered by Strategy and its co-founder, Michael Saylor.Last week, analysts at digital asset bank Sygnum argued that the rising holdings of Strategy and other corporate accumulators risk making bitcoin "inappropriate" for central bank reserves, thereby undermining its safe-haven properties. Coinbase Institutional's Global Head of Research, David Duong, also warned that leveraged corporate crypto buying may eventually pose "systemic risks." However, he said that the pressure appears limited in the short term.Saylor, on the other hand, remains confident in Strategy's resilience. In a recent interview with the Financial Times, he said Strategy's capital structure is designed to withstand a 90% drop in bitcoin that persists for four to five years, thanks to its mix of equity, convertible debt, and preferred instruments — though he acknowledged that shareholders would still "suffer" in such a scenario.Saylor's use of public capital markets to accumulate bitcoin has since sparked a broader movement, with more firms exploring similar treasury strategies for other crypto assets. Proof-of-Stake tokens may become especially attractive, Chung said, as staking rewards could boost asset growth and support higher valuations for companies focused on altcoins. "While it's still early days and valuations can fluctuate widely, early signs of this trend are already apparent," he noted.However, managing these strategies is a complex task. Some newer, inexperienced entrants may struggle in a downturn, Chung warned, especially if they mismanage liquidity or overextend balance sheets. Still, this doesn't necessarily make the crypto market riskier overall, he said, adding that crypto treasury companies don't introduce new systemic threats — they reflect the same liquidity challenges faced by large retail holders. Ultimately, the key risk isn't the market itself but how well each player plans for unpredictable funding needs, Chung concluded.Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.© 2025 The Block. 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