Bitcoin, Ethereum, Solana Treasury Companies Need To Manage Market Volatility, Franklin Templeton Report Warns

Corporate crypto treasury strategies offer substantial opportunities but also carry the risk of a damaging feedback loop, according to a Franklin Templeton Digital Assets report.

What Happened: The firm noted in its report published on Wednesday the growing number of publicly traded companies adopting crypto treasury models, where businesses raise capital to purchase and hold crypto assets like Bitcoin BTC/USD, Ethereum ETH/USD, and Solana SOL/USD on their balance sheets.

According to Bitcoin Treasuries data, around 135 public companies are now following this approach with Bitcoin alone.

Inspired by Michael Saylor's playbook at Strategy MSTR, these companies have collectively raised billions of dollars since early 2024 through instruments such as equity offerings, convertible notes, preferred shares, private placements, and in some cases, SPACs or reverse mergers.

Beyond Strategy's leadership in Bitcoin, other key players include Metaplanet MTPLF, Twenty One, SharpLink, Upexi, and Sol Strategies, each focusing on specific crypto assets like Bitcoin, Ethereum, or Solana.

Franklin Templeton analysts highlighted the key advantage of this model: companies can raise capital at a premium to their net asset value (NAV), meaning they can issue shares at a price higher than the value of the crypto they hold.

This dynamic, they noted, is supported by crypto's inherent price volatility, which increases the value of embedded options in instruments like convertible notes.

Rising crypto prices can also create a positive feedback loop where higher valuations attract new investors, reinforcing stock price gains and enabling further capital raises.

For firms holding Proof-of-Stake assets like Ethereum and Solana, staking provides an additional revenue stream that compounds potential returns.

Also Read: Anthony Scaramucci Predicts Bitcoin Treasury Frenzy ‘Will Fade’

Why It Matters: Franklin Templeton warned that the strategy is not without significant risks.

If a company's stock price falls below its NAV, issuing new shares would dilute existing investors and could halt capital inflows, disrupting the growth cycle.

Falling crypto prices could spark a negative spiral, where companies are forced to sell assets to stabilize their stock price, which would further depress crypto markets and erode investor confidence.

“The corporate crypto treasury model is a new phase of institutional adoption, but managing the premium to NAV and navigating market volatility will be critical to the model's survival,” the analysts concluded.

A sustained market drawdown or an extended bear market could quickly make these companies highly risky bets.

Analysts at Presto Research have also flagged that the risks of liquidation or collapse within the crypto treasury sector are real, though they argue these risks are more nuanced than previous crises like Terra LUNC/USD or Three Arrows Capital.

Meanwhile, Coinbase COIN Institutional's David Duong has warned that aggressive, leveraged corporate crypto buying could eventually pose systemic risks, though near-term pressures remain contained.

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