Corporate Crypto Treasuries Risk Market Downturns Franklin Templeton Warns

Franklin Templeton Digital Assets has issued a warning that the growing trend of corporate crypto treasuries could exacerbate market downturns if prices fall sharply. The firm's analysts highlighted that while this strategy has been praised for boosting institutional adoption and company valuations, it carries inherent risks that could trigger a destructive feedback loop in bearish conditions.

Publicly traded companies have been aggressively raising capital through various instruments to acquire Bitcoin, Ethereum, and Solana for their balance sheets. Data from Bitcoin Treasuries indicates that 135 listed firms have adopted this strategy, with notable leaders including Strategy, Metaplanet, Twenty One, SharpLink, Upexi, and Sol Strategies. These firms have raised billions since early 2024 by issuing shares at premiums to net asset value (NAV) and capitalizing on crypto volatility.

Franklin Templeton analysts pointed out that the benefits of this approach include the ability to raise capital above NAV, making share issuance accretive even amid price swings. Additionally, for Proof-of-Stake assets like Ethereum and Solana, staking yields can add revenue streams, enhancing company growth when crypto prices rise. Rising markets can further attract investors, fueling a positive feedback loop.

However, the report also flagged significant downsides. If the market-to-NAV ratio slips below 1, equity issuance becomes dilutive, undermining investor confidence and stalling capital inflows. Worse, if crypto prices fall sharply, companies might feel pressured to sell holdings to support their stock price, sending crypto prices even lower and deepening investor fear. Such a negative feedback loop could turn a price dip into a self-reinforcing crash.

“The corporate crypto treasury model represents a new phase of institutional crypto adoption, but it is not without its risks,” Franklin Templeton wrote. Maintaining a premium to NAV and managing market volatility will be essential to avoid dangerous spirals.

The warning from Franklin Templeton echoes recent concerns from other analysts. Matthew Sigel, head of digital asset research at VanEck, has voiced similar apprehensions about the Bitcoin treasury strategies adopted by some publicly traded firms. Sigel argued that at-the-market (ATM) share issuance programs can become dilutive if a company’s stock price nears its Bitcoin net asset value (NAV). He suggested suspending ATM programs if shares trade below 0.95 times NAV for more than 10 consecutive days to protect investors.

Meanwhile, a class action lawsuit has been filed against Michael Saylor’s Strategy by New York law firm Pomerantz LLP. The lawsuit accuses the Bitcoin-focused firm of misleading investors about the profitability and risks of its crypto investment strategy. According to Pomerantz, Strategy overstated the benefits of its Bitcoin treasury strategy and downplayed the volatility and risks inherent to large-scale Bitcoin holdings.