crypto balance sheet risks

As more publicly traded companies embrace Bitcoin and other digital assets as part of their balance sheets, Franklin Templeton Digital Assets has raised a cautionary flag: corporate crypto treasuries may pose serious downside risks in bearish markets. In a newly released report, analysts from the global asset management firm say that while the crypto treasury model has fueled growth and investor interest during market rallies, it may also set the stage for amplified sell-offs during downturns. Crypto on the Balance Sheet: A Double-Edged Sword?Over 135 public companies have already added Bitcoin to their treasuries, using a strategy popularized by MicroStrategy — led by Michael Saylor — which involves raising capital through premium-priced stock offerings and investing in cryptocurrencies. The benefits are clear in a rising market: Companies raise cash at valuations above their net asset value (NAV). Investors flock to crypto-related stocks. Proof-of-Stake assets like Ethereum and Solana can even provide staking yield as an added revenue stream. But Franklin Templeton warns that this strategy isn’t without significant risks. “The corporate crypto treasury model represents a new phase of institutional crypto adoption, but it is not without its risks,” said the analysts. The Downside: How Bear Markets Could Trigger a Feedback LoopThe biggest concern? If crypto prices drop and a company’s market-to-NAV ratio dips below 1, issuing new stock becomes dilutive, not accretive — which could damage investor confidence. And worse still, if prices fall sharply, some companies might be forced to sell crypto holdings to support their stock performance or liquidity — sending digital asset prices even lower and triggering a self-reinforcing crash. Franklin Templeton sees this risk as a possible negative feedback loop, where falling prices lead to forced sales, deepening losses, and escalating investor panic. Others Are Sounding the Alarm TooFranklin Templeton’s concerns echo recent warnings from other key players in the space: VanEck’s Head of Digital Asset Research, Matthew Sigel, has criticized the overuse of at-the-market (ATM) share programs. He proposed temporarily halting share sales when stock prices fall below 0.95x NAV for 10 days straight — to protect shareholders from excessive dilution. Meanwhile, Michael Saylor’s Strategy is under legal pressure. A class-action lawsuit from law firm Pomerantz LLP alleges that the company misled investors by downplaying the risks of holding large amounts of Bitcoin on its books. Final ThoughtsAs corporate interest in crypto continues to grow, Franklin Templeton’s warning highlights the need for caution. While Bitcoin treasury strategies may bring upside during bull runs, companies and investors alike must prepare for the potential dangers in downturns. The key will be to maintain a premium to NAV, manage volatility carefully, and avoid overleveraging on crypto assets — especially as more institutions jump into this evolving financial frontier.