Crypto Treasury Myth: Investors Are Misunderstanding $150 Billion Market
Over the past several months, crypto-focused funds have launched en masse, with a mandate to acquire digital assets and generate as much yield for shareholders as possible.
This new class of firms — including Strategy (MSTR), Metaplanet (3350.T) and Semler Scientific (SMLR) — is often labeled "crypto treasury stocks," and headlines have celebrated corporate "bitcoin buys" and the stock pops that follow.
The story is usually told in simple terms: A company acquires more coins, investors cheer, and the market cap rises. But that framing is incomplete, downplaying the financing mechanics that make each purchase possible.
The real hazards to shareholders: Share dilution from steady equity issuance and leverage embedded in convertible debt have little to do with buying and holding digital assets. Instead, they are baked into the financing mechanics these businesses leverage to raise capital.
Analysts and investors should pay close attention to how these companies fund themselves (not just how many coins they hold) to fully understand what they are buying into. The biggest players in this niche are not merely stockpiling crypto; they are running a capital-markets flywheel, which can turn optimism into buying power in fair weather, but quickly unwind when conditions change.
Labeling Firms as 'Crypto Treasuries' Hides How They Really Operate
The term "Crypto Treasury Stocks" or "Digital Asset Treasury Company" implies passive asset management, as if a fund manager moves cash into bitcoin or another crypto token and then waits for prices to rise.
In practice, these firms behave more like financial engineers than traditional-operating companies. They sell new equity through at-the-market programs, place convertible bonds, issue preferred stock, and attach warrants to sweeten deals, using the proceeds to fund additional crypto purchases.
This works when market conditions are strong and investor appetite is high. But when conditions turn sour, refinancing costs rise, windows for issuance close, and crypto treasury stocks fall faster than the value of the crypto they hold. The same financial engineering tricks that propel stock prices in fair weather can cause them to crater in negative market conditions.
Perhaps a more fitting term for this subset of companies is "Crypto Asset Product Companies" (CAPs), a term that hints at the financial products companies leverage to raise funds and generate "yield" on their crypto holdings.
Hidden Mechanics That Move Share Prices
The financial engineering techniques employed by crypto treasury strategy fund managers introduce additional risks for investors that aren't present in ETFs, which purely buy and hold tokens and are designed to track their underlying value. The core risks are familiar to anyone who covers equity financing, but they are easy to miss when analysts over-index on coin counts.
At-the-market equity issuance allows a company to sell small amounts of new stock directly into the open market, often daily. It is flexible and efficient, but it increases the share count, diluting investors. Over a few brisk quarters, dilution can add up quickly, leading to falling share prices, despite headlines showcasing high-profile bitcoin buys.
Another common tactic is leveraging convertible notes. The company borrows at a low interest rate today to buy BTC but grants lenders the right to be repaid in stock instead of cash if the share price rises above a preset level. That keeps dilution low at the start, but if the stock rallies, the share count expands on conversion — once again, diluting investors. Warrants work similarly, often diluting investors in the interest of raising capital to purchase additional coins.
The strongest operators combine these tools into a playbook. When their stock trades at a premium to the value of their coins, they raise capital on favorable terms, buy more BTC, and keep optionality, with ATMs, warrants or convertibles, they can tap as conditions change. In a rising market the flywheel spins. Premium valuations make fundraising accretive, which funds more purchases, which supports the story. Investors might get diluted, but their overall holdings are ultimately worth more.
Since adopting its bitcoin treasury strategy in 2020, Strategy has delivered gains exceeding 3,300 percent, while Japan's Metaplanet has surged 980 percent in just over a year, showcasing how effectively these companies have leveraged financial engineering to bolster their share prices.
But the mechanics cut both ways. If the premium compresses, new deals get harder, refinancing costs rise, conversions and warrant exercises add supply, and loans secured by crypto can demand more collateral at the worst moment. Unlike ETFs that move in close correlation with bitcoin prices, these companies can experience dramatic stock declines even when the underlying crypto asset price remains relatively stable.
That's why treating these companies like simple treasuries — or ETF lookalikes — is dangerously misleading. The key metric to watch is not how much crypto a company holds on its balance sheet, but how effective it is at financial engineering: Is the company able to grow its holdings without diluting investors?
Fixing Public Perception Before Another Catastrophe
Many investors still view Strategy and its peers as simple proxies for bitcoin exposure. And they will get burned — perhaps even develop a negative view towards digital assets—when they encounter capital markets-associated risks that they had not fully appreciated.
As an industry, it's important that we educate the mainstream public on what these financial products actually are, and the risks they carry. Their complex capital structures require a different analytical framework than either traditional equity investments or simple cryptocurrency exposure.
The combination of mainstream enthusiasm and lack of mainstream understanding has been a toxic mix for crypto in the past. It allowed shady operators to thrive, giving the mainstream public a poor first impression of the industry and associating the term "crypto" with devastating financial losses.
Now that the industry has another swing at the mainstream spotlight — this time with Wall Street's full support — it is imperative that crypto leaders adequately educate the public.
Carylyne Chan is a managing partner at BlockSpaceForce.