Bitcoin's Forced Selling Pressures and Systemic Risks in Overleveraged Digital-Asset Treasury Companies

The third quarter of 2025 marked a pivotal moment for Bitcoin and the broader crypto ecosystem, as a 27% price decline from its October peak triggered record liquidations and exposed deep structural vulnerabilities in leveraged markets. This selloff, driven by macroeconomic uncertainties and the proliferation of high-leverage instruments like perpetual futures and crypto loans, created a cascading effect that rippled through both digital and traditional financial systems. For investors, the episode underscored the fragility of overleveraged digital-asset treasury (DAT) companies and their outsized influence on crypto-exposed equities.

Structural Vulnerabilities in Leveraged Crypto Markets

The Q3 2025 selloff was exacerbated by the widespread adoption of leveraged products, with crypto lending outstanding reaching $74 billion by September 2025. Platforms offering up to 10x leverage, such as Coinbase, amplified price volatility, turning minor downward movements into margin calls and forced liquidations. This dynamic disproportionately impacted DAT companies-public firms holding significant Bitcoin reserves-which saw their stock prices plummet alongside Bitcoin's decline(https://www.investing.com/analysis/bitcoin-extends-decline-as-margin-calls-trigger-forced-selling-across-exchanges-200670409). For example, Strategy (formerly MicroStrategy) and BitMine Immersion Technologies experienced sharp underperformance, as their balance sheets became increasingly exposed to Bitcoin's volatility.

The crisis also highlighted a liquidity crunch across exchanges, revealing the fragile interplay between leveraged trading, lending, and equity markets. While some analysts attributed the selling pressure to profit-taking rather than margin calls, the structural issues-namely, excessive leverage and thin liquidity-remain unresolved. These factors are now central to understanding Bitcoin's next phase of price behavior and the systemic risks embedded in DAT strategies.

Interconnectedness and Systemic Risk

Digital-asset treasury companies have become a bridge between traditional finance and crypto markets, with over 200 public firms holding $115 billion in digital assets by mid-2025. These entities raise capital through equity offerings, convertible notes, and PIPEs to accumulate Bitcoin and Ethereum, offering institutional investors indirect exposure to crypto when direct ownership is constrained by regulatory or operational barriers(https://www.dlapiper.com/en-us/insights/publications/2025/10/key-capital-market-trends-digital-asset-treasuries). However, this integration has introduced new risks. During the October 2025 crash, DATs trading at premiums to their net asset value saw those premiums flip to discounts, triggering forced asset sales that further depressed crypto prices.

The leverage embedded in DAT capital structures compounds these risks. Smaller firms with aggressive debt issuance or speculative valuations faced market net asset value (mNAV) ratios below 1x, signaling financial distress. For instance, Nakamoto Holdings and Metaplanet, with mNAV ratios of 0.50x and 0.88x, respectively, resorted to stock repurchase programs and BTC sales to stabilize their balance sheets. Such actions, while temporary fixes, highlight the fragility of DATs during market stress.

Leverage, Liquidity, and the October 2025 Crisis

Post-October 2025, the crypto sector's leverage ratios and liquidity positions came under intense scrutiny. By Q3 2025, crypto-collateralized lending had reached $73.59 billion, with on-chain lending accounting for 80% of the market. While Galaxy Research noted that this leverage was more transparent and collateralized than in previous cycles, the October liquidation event-where $19 billion in leveraged positions were wiped out in hours-exposed lingering systemic risks.

DAT companies with mNAV ratios below 1x faced existential threats, as falling Bitcoin prices forced them to sell holdings to meet debt covenants or support stock prices. This created a self-reinforcing cycle: declining prices led to forced sales, which further depressed prices and liquidity. The October 2025 crash, triggered by a Trump tweet threatening 100% tariffs, erased $400 billion in crypto market value in a single day, compounding the challenges for overleveraged DATs.

Systemic Risk Indicators and Regulatory Implications

The interconnectedness of DATs with traditional markets has introduced new systemic risk indicators. For example, stablecoins holding U.S. Treasury reserves and crypto investment vehicles gaining traction among institutional investors have created feedback loops that could destabilize broader financial systems. A sudden redemption rush for stablecoins, for instance, could trigger a run on their reserves, affecting traditional banks(https://www.reuters.com/business/finance/cryptos-connections-rest-financial-system-2025-11-20/).

Regulators, including the EU's NBFI Monitor, have flagged the risks posed by alternative investment funds (AIFs) and hedge funds with crypto exposures. These entities, often engaged in carry trades, face amplified losses during interest rate hikes or market corrections(https://www.esrb.europa.eu/pub/nbfi/html/esrb.nbfi202509.en.html). Meanwhile, the lack of robust hedging instruments in crypto markets-compared to U.S. equities-exacerbates liquidity mismatches during downturns.

Conclusion: Navigating the New Normal

The Q3 and October 2025 events have reshaped the landscape for Bitcoin and DAT companies. While conservative CeFi practices and collateralized lending have mitigated some risks, the structural issues of leverage, liquidity, and interconnectedness remain unresolved. For investors, the key takeaway is the need for caution: DATs with strong collateral positions, like Strategy, may withstand future corrections, but smaller, overleveraged firms face existential threats.

As the crypto market evolves, regulatory frameworks like the EU's MiCA and U.S. accounting standards will play a critical role in addressing systemic risks(https://www.metrika.co/blog/panel-discussion-digital-assets-week-london-2025). Until then, the interplay between Bitcoin's volatility, DAT leverage, and traditional markets will continue to define the next phase of this nascent asset class.