The Treasury Company Cycle: How Crypto-Treasury Companies Like MicroStrategy Work and Their Risks and Rewards

In recent years a new breed of public companies – often dubbed “crypto treasury companies” – has emerged. These firms treat cryptocurrencies (especially Bitcoin) as core treasury assets. The poster child is MicroStrategy (NASDAQ: MSTR), a business‐intelligence software firm that famously pivoted to Bitcoin in 2020. Since then MicroStrategy has raised equity and debt, not to expand its software business, but to buy and hold Bitcoin on its balance sheet. Other companies (both public and private) have followed suit. By mid‐2025 some 64 SEC‐registered companies held roughly 688,000 BTC in total (about 3–4% of circulating supply) (medium.com). Established private firms also sit on huge crypto treasuries – for example, Block.one (~140,000 BTC) and Tether (~92,646 BTC) (graphlinq.io) (graphlinq.io). In short, corporate treasuries have entered the crypto market in force.

These “treasury companies” represent a novel investment cycle: businesses that finance themselves primarily to accumulate crypto instead of relying on core operations. For a technical trader, their capital structures, market dynamics and reflexivity create both unique opportunities and distinct perils. Below we examine how they work, step by step, and what risks and rewards arise.

The Crypto-Treasury Model: Funding and Acquisition

A defining feature of crypto-treasury companies is that operating cash flow is usually insufficient to finance large holding. In most cases their core businesses (software, energy, etc.) deliver only modest cash, far below the billions needed to buy crypto. For example, MicroStrategy’s legacy business still generates only hundreds of millions in revenue – not enough to fund its multi‐billion dollar Bitcoin stash. As one analysis notes, MicroStrategy’s operating cash flow is negative on an annual basis, “far short of the tens of billions it has invested into Bitcoin” (medium.com). In short, these firms rely almost entirely on capital markets (equity or debt) to fund crypto purchases, not on profits or sales from their original business lines.

Typically, a crypto-treasury company raises new capital in the stock market or bond market and then uses it to buy cryptocurrency. For example, MicroStrategy has repeatedly issued stock and debt since 2020. In late 2024 it announced a $42 billion capital plan: raise $21 billion in equity and $21 billion in convertible bonds over three years, expressly to buy more Bitcoin (www.panewslab.com). (At that time MicroStrategy already held 252,220 BTC (www.panewslab.com).) After its latest offering it still had about $891.3 million in cash on hand (www.panewslab.com), ready to deploy on dips or with new funding.

Likewise, other companies and SPACs that pivoted into crypto have financed their acquisitions through the markets. A 2025 example is SharpLink Gaming (ticker SBET). SharpLink was a small gaming firm that “pivoted in 2025 to become an Ethereum treasury vehicle,” amassing some 280,706 ETH (about $840 million) (medium.com). Crucially, SharpLink could not have raised that kind of money through gaming revenue. It instead used private investment in public equity (PIPE deals) and direct share issuances. In every case, the crypto haul was funded by new investors and debt, not by the legacy business itself (medium.com) (medium.com).

To summarize, the treasury cycle begins when a company:

• Raises capital via equity or debt issuance.
• Deploys the capital to buy crypto (usually Bitcoin or Ethereum).
• Holds the crypto on its balance sheet as a “strategic reserve.”

Operating cash flows are largely irrelevant in this strategy. As one author puts it, MicroStrategy “monetizes stock volatility rather than relying on operational cash flow.” (medium.com). The key, then, is how they structure that financing.

Capital Structure and the Leverage “Flywheel”

Crypto-treasury companies often use sophisticated capital structures to amplify returns (and risk). MicroStrategy’s model is instructive. It has combined common stock, convertible bonds, and even preferred equity to build a multi-tiered capital stack. The goal is to effectively give investors various leverage exposures to Bitcoin price moves.

For example, MicroStrategy has issued zero-coupon convertible bonds. These bonds pay no cash interest, but they can be converted into MSTR stock. In a high-volatility Bitcoin market, those conversion options are extremely valuable – investors accept 0% interest because they expect to profit when the stock/BTC rally (medium.com). Hedge funds buy these bonds and then “dynamically hedge” by shorting MSTR stock (selling it short against the convertible), a strategy known as gamma trading (medium.com). The result is a self-reinforcing cycle: the convertible issuance raises more funds, which MicroStrategy uses to buy Bitcoin, which tends to push its stock price up. In turn, the more the stock trades above its embedded net Bitcoin value (the so-called market-to-NAV or mNAV☼ ratio), the easier it is to issue new stock without dilution.

In practice, when MicroStrategy’s stock trades at a premium to its Bitcoin holdings (mNAV > 1), the company can issue new equity at these high prices and effectively “print” new Bitcoins for each share (medium.com). Each dollar raised buys Bitcoin, which increases the total crypto per share outstanding. This creates a “self-reinforcing flywheel”: rising crypto prices lift the stock, enabling further capital raises, which drive more Bitcoin accumulation (medium.com). Michael Saylor calls this effect “leverage” – issuing bonds, convertibles and preferred shares gives him tools to magnify the Bitcoin bet.

In fact, MicroStrategy’s filings include charts showing the different implied leverage of each financing instrument. Common shares have 1x leverage on Bitcoin (each $1 of stock buys 0.37 BTC at current prices), but preferred shares and convertibles amplify that (e.g. a preferred share might buy twice as many satoshis per dollar of equity). On-chain analysts and the company itself have noted that this is akin to “monetizing stock volatility” (medium.com) (medium.com).

So the typical capital-stack cycle is:

• Stock issuance (at premium): Immediately after a rally, MSTR stock often trades at a premium to NAV. MicroStrategy raises equity capital and immediately converts shares into Bitcoin.
• Bond/Convertible draw: MicroStrategy may simultaneously sell convertibles to get cash. The sale leverages on the expected rise in its stock/Bitcoin volatility.
• Hedge-fund eco-system: External traders (quant funds, arbitrage desks) buy the convertibles and short MSTR stock to lock in the spread, further fueling stock volume. This sustains share-price support since convert-holder selling is offset by new demand or supply dynamics.
• Bitcoin purchase: The company uses all proceeds to buy crypto, stacking its treasury. Each deployment slightly increases Bitcoin-per-share.

This “raise-crypto, buy-crypto” cycle repeats as long as capital markets remain receptive. While the cycle functions smoothly, MSTR’s Bitcoin holdings grow and so does its NAV. This frees up more capital to raise, and so on. Indeed, MicroStrategy’s 2024 plan was explicitly to ride Bitcoin’s expected upcycle, raising $42B to acquire more Bitcoin over three years (www.panewslab.com).

As of Q3 2024, MicroStrategy held 252,220 BTC on its books (www.panewslab.com) – an investment then worth roughly $16 billion. That stash was built entirely by external financing: a series of $1 billion+ convertible deals (often at 0% interest) and follow-on share offerings. The company even hiked its internal target “BTC yield” (return on invested capital in crypto) from 4–8% to 6–10%, illustrating how important these crypto gains are to their model (www.panewslab.com).

(☼ mNAV = Market-to-Net Asset Value. It’s often defined as MSTR’s market cap divided by the dollar value of Bitcoin it holds. When mNAV > 1, the stock price exceeds the pro-rata worth of its BTC holdings.)*

The Treasury Cycle in Action

The interplay between these crypto-treasury companies and the broader crypto market has a cyclical feel, resembling classic boom-bust phases:

• Crypto Bull Phase (Accumulation): In a Bitcoin rally or bull market, crypto-treasury firms see their stock surge. MicroStrategy’s stock, for example, roughly tripled in 2023 as Bitcoin nearly doubled. Such rallies push mNAV higher, making it easy to raise capital. Companies then issue shares and debt at favorable terms and deploy all funds into more crypto. Each round of issuance can momentarily dampen the share-price (because new supply hits the market) but is offset by the bullish narrative. This can amplify the bull cycle: corporate treasuries add demand, further supporting crypto prices. Indeed, analysts have likened this to the “speculative attack” on fiat currencies – a recursive feedback where buying crypto validates bullish memes and attracts even more investors (bewaterltd.com).

• Bubble Psychology and Speculation: The surge in corporate treasury issuance can create a euphoria reminiscent of historical manias. One recent analysis drew a parallel between today’s Bitcoin treasury companies and the investment trusts of the 1920s. In that era investors eagerly paid 2x or 3x the value of a trust's underlying securities; similarly today, some investors bid MSTR stock well above its NAV under the belief that Bitcoin’s rise will continue indefinitely (www.chaincatcher.com). In short, many of the same reflexive forces that drove past bubbles are at play: rising prices feed hype, which justifies further raising and buying, which fuels prices (a classic reflexivity loop) (www.chaincatcher.com).

• Plateau/Consolidation: At some point the fuel can run short. If Bitcoin flattens or consolidates, fundraising can proceed but with reduced enthusiasm. Companies may slow their issuance or hold cash. The stock might trade roughly in line with NAV (mNAV ≈ 1), so new equity offerings at that point would give no real premium. During such phases, a treasury company’s share can decouple from crypto volatility and instead reflect more normal balance-sheet valuation.

• Crypto Bear Phase (Stress): The danger arrives when crypto prices drop sharply. If Bitcoin falls, MSTR’s NAV plunges. A falling crypto price hits equity (and convertible value), raising mNAV back toward or below 1. In that scenario, capital-raising becomes problematic: issuing shares at or below NAV is dilutive, and convertible terms may no longer attract buyers. A bear market can freeze the flywheel. Worse, debt obligations still exist. If MicroStrategy faces a convert maturity or preferred dividend obligation with little market appetite for new issuance, it may ultimately have to sell Bitcoin or restructure. Despite CEO Michael Saylor’s avowed “never sell” policy, financial stress could force liquidation “under stress scenarios such as debt maturities, high dividend obligations, or failed capital market access” (medium.com). This is a key risk of the cycle: a self-reinforcing collapse. Hedge funds that once fueled the flywheel by hedging convertible debt would unwind positions, adding downward pressure. A “liquidity spiral” could emerge where more selling begets more selling.

Thus, the treasury company cycle loosely follows crypto market cycles – accelerating when crypto is rising, and mocking the behaviors of previous asset bubbles. The chart below conceptually illustrates this loop:

• In a bull crypto cycle: shares leverage NAV to raise funds ⇒ extra buying pushes crypto even higher ⇒ cycle repeats.
• In a bear crypto cycle: NAV shrinks, issuances dry up, any forced selling of crypto or equity weakens both, completing a self-reinforcing crash.

This phenomenon has even prompted cautionary historical comparisons. One commentator observed that today’s scene bears “a striking resemblance to the investment trusts of the 1920s,” a time when speculation detached prices from fundamentals (www.chaincatcher.com). Treasuries are effectively mimicking those old leveraged trust pools (and their eventual crashes), albeit in a more transparent, modern wrapper.

Risks of the Crypto Treasury Strategy

For traders, understanding the risks of these companies is critical. Key vulnerabilities include:

• Leverage and Volatility: By design, treasury companies take leveraged exposure to crypto volatility. Recall that MicroStrategy’s leverage comes from zero-coupon convertibles and similar instruments. In a high-volatility regime (like a crypto bull), these are great. But when volatility spikes the other way (crypto crash), the same leverage works against the company. The value of its convertibles can plummet, and stock hedges unwind violently. Market maker hedging flows can exacerbate swings. In short, volatility cuts both ways.

• Liquidity and Funding Risk: These firms depend on continuously tapping the public markets. If at any point MSTR stock (or the stock of a smaller crypto-treasury company) trades below its NAV, raising new equity becomes immediately dilutive and unattractive. And if credit markets tighten (higher yields or crypto downturn), issuing new bonds or convertibles may become impossible or punitive. A poorly timed dry-up of funding could leave a treasury company stuck with bills to pay (dividends, convert redemptions) and an illiquid treasury. As noted, without market access they might have to sell crypto at the worst time.

• Balance-Sheet Risk: The core treasuries are only as strong as the assets (Bitcoin, Ethereum, etc.) they hold. Crypto is famously volatile. A 10% daily swing in Bitcoin is unprecedented for traditional portfolios. If crypto heads much lower, the balance sheet equity of these firms can sharply erode. Unlike a bank holding loans, there is no stable, cash-generating cushion – just digital coins. For example, if Bitcoin fell 50%, MicroStrategy’s NAV and stock could theoretically lose half (or more) of its value overnight, regardless of any underlying business.

• Operational and Governance Risk: Many crypto-treasury companies are effectively shells for crypto speculation. Their original business often becomes secondary. MicroStrategy still runs its analytics software business, but with minimal operating profit; other examples (like SharpLink Gaming) have pivoted entirely. This raises concerns about corporate governance, as management is singularly focused on crypto price bets. It also means that if the crypto bet fails, the legacy business may be too small to sustain the company. In some cases, consolidation risk arises: could management raise funds for crypto and then pivot again (or misallocate assets)? Auditors and regulators will be watching.

• Regulatory and Policy Risk: Governments have been slow to fully embrace corporate crypto treasuries. There’s no guarantee that regulatory bodies (like the SEC or IFRS boards) will continue to allow this treatment. Future rules might limit how crypto is valued on balance sheets, or mandate reserve requirements, or classify these companies differently. For example, if Bitcoin is ever regulated as a security or if taxes on corporate crypto gains change, the business model could suffer abrupt shifts. So far, companies like MicroStrategy have complied with current SEC reporting (they transparently disclose holdings). But unexpected rule changes or a tougher stance on crypto reserves could immediately raise risk for shareholders.

• Speculative Bubble Risk: Perhaps the gravest concern, from a market cycle perspective, is that crypto-treasury companies could be themselves a speculative bubble. Analysts warn that investors may be pouring money into these stocks more for their Bitcoin exposure than any business fundamentals. If a critical mass of investors starts to treat MSTR and peers like Bitcoin proxies, then their prices will reflect crypto sentiment rather than company value. In past bubbles, such “reflexive” feedback loops have ended badly. The comparison to 1920s trusts underlines this: in 1929, many trusts were essentially financial vehicles that hopped on stock market bets and collapsed when the game stopped (www.chaincatcher.com). Traders should recognize that the same danger exists here – high multiples and sentiment can reverse violently.

• Market Concentration: A few names (MSTR, Tesla, maybe MicroStrategy-like SPACs) can become focal points for crypto bulls. If one large treasury stock is heavily cross-held (e.g. by Bitcoin ETFs or index funds), a forced sell-off could cascade through the market. Conversely, such stocks might draw momentum-trading flows on the way up. From a trader’s view, watching order flow and block trades in these stocks can give clues to the health of the cycle; a big institutional buyer or seller of MSTR might signal shifting tides.

In summary, the downside risks are large. A crypto bear market or credit crunch could inflict outsized losses on these companies – potentially wiping out years of equity and even risking bankruptcy. That’s the inherent tradeoff of the treasury cycle.

Potential Rewards and Upside

On the flip side, the rewards can be substantial if the crypto thesis plays out. Key upside factors include:

• Outsized Crypto Exposure: For investors who strongly believe in Bitcoin or another coin, corporate treasuries offer a way to leverage that bet through traditional markets. When Bitcoin rally, MSTR stock typically rallies by a multiple due to its leverage (via convertible funding, etc.). Over the past bull run, MicroStrategy’s stock has often swung 2–3 times the percentage moves of Bitcoin. In early 2025, for instance, when Bitcoin reached new highs, MSTR’s market cap quadrupled from its 2023 lows – far more than most tech or even crypto stocks (www.ft.com) (medium.com). (It even gained entry into the Nasdaq 100 index.) Thus, shareholders can see magnified gains relative to holding crypto directly.

• Monetizing Volatility: The structure deliberately bets on volatility. If Bitcoin is in a strong uptrend interspersed with swings, MicroStrategy’s convertible strategy captures profits from the volatility. Even if bitcoin’s net price gain is moderate, MSTR’s share price can rise simply because the company increases its holdings each time volatility allows a capital raise. In effect, long-term shareholders get a levered bet on Bitcoin.

• “Free Option” Style Financing: Issuing 0% convertibles is economically similar to selling OTM call options on the company stock (with proceeds used to buy calls on Bitcoin via the purchase). In a sense, MicroStrategy has sold volatility to hedge funds for cash, which it then turns into an alternate store-of-value. If Bitcoin performs, the options (convertibles) may be exercised into stock at a higher price and expensive to absorb; the holders profit and company stock does too. Meanwhile, MSTR’s own treasury gains Bitcoin value. Successful issuance at low interest rates is effectively “printing Bitcoin for free” in good times (medium.com).

• Narrative and Index Flows: Prominent treasury companies can attract retail and institutional flows simply via narrative. As Michael Saylor has touted, he sees his company as an “incubator” of Bitcoin adoption in corporate America. Large index or fund inclusion (like Nasdaq 100 inclusion) forces passive buying of MSTR shares, which can prop up valuations. Moreover, any positive regulatory developments (e.g. Bitcoin ETF approvals) tend to benefit these stocks. If the crypto ecosystem continues its growth, treasury companies may become bellwethers.

• Balance-Sheet Diversification: Holding Bitcoin can, for a time, act as an inflation hedge or uncorrelated asset. Some investors believe corporate treasuries give companies an edge if fiat weakens. Tether’s strategy, for instance, is to hold BTC alongside U.S. Treasuries as part of its reserves (graphlinq.io). For a private firm like Tether, that’s an indirect bet on digital gold supporting its stablecoin. For traders, it shows a broader utility: treasury firms can combine crypto with traditional assets. In theory, that lowers corporate treasury volatility (if balanced right), though in practice many are mostly crypto.

In sum, the reward profile is extremely skewed. If you believe Bitcoin will moon, these stocks could vastly outperform (as they have on some runs). Traders who time it right in a bull market can make outsized gains. Indeed, analysts have described MicroStrategy as a kind of leveraged Bitcoin ETF – a way to get levered upside if crypto rallies sharply (medium.com) (www.chaincatcher.com).

Trader Takeaways: Navigating the Treasury Cycle

For a technical trader or analyst, these companies introduce a unique dynamic to portfolios. Here are some practical points:

• Watch Crypto Indicators: Since a treasury company’s fate is linked to crypto, chart Bitcoin and other holdings carefully. If crypto shows exhaustion or divergence, expect these stocks to lead the fall. Conversely, during crypto breakouts, MSTR and the like may break out first as they have more beta.

• Monitor mNAV Ratio: Traders often watch the market-to-NAV ratio of treasury stocks. When MSTR’s mNAV is well above 1, it suggests optimism (and easy fundraising). A falling mNAV towards 1 may signal the end of capital raises. Sudden drops in mNAV (stock falling faster than crypto) can be a red flag of waning sentiment.

• Cap Market Events: Keep an eye on announcements of new share or bond issuance. These events can cause short-term volatility. For example, whenever MicroStrategy announces a convertible offering, the stock often falls (as shares price in dilution), then may recover if Bitcoin resumes. One could trade these dip-buying opportunities, but beware that frequent issuing implies higher inventory of convertibles (a short squeeze-like scenario if deals get oversubscribed).

• Gamma and Volatility Strategies: Some traders hedge convertible issuance by shorting MSTR – they profit if volatility drops or if stock does not rise as much as expected. Conversely, one could go long volatility around issuance dates. Sophisticated options strategies are possible, given the way hedgers can crowd at these events.

• Relative Performance: Compare treasury stocks to pure crypto plays or miners. For instance, MicroStrategy vs. GBTC (Grayscale BTC trust) or vs. Bitcoin ETFs. MSTR typically offers more leverage (including equity issuance), but also more company-specific risk. During boom times, MSTR may outperform Bitcoin; in crashes, it may also underperform more severely. This relative behavior is a key trading angle.

• Risk Management: Given the high stakes, sizing is crucial. Even if the narrative is bullish, technical traders should limit exposure due to the asymmetric downside if capital markets freeze. It’s wise to watch debt maturities or key convertible dates: if a big convertible is set to mature near term with no refinancing plan, that’s a risk moment.

• Market Sentiment & News: Stay abreast of SEC comments, audit reviews, or new entrants. For example, any news that dozens of new companies are adding Bitcoin to treasuries (as happened in mid-2025 (medium.com)) can fuel momentum. Conversely, any regulatory crackdown or mass selling (like a rumored S&P 500 inclusion) could swing sentiment violently.

In essence, trading these stocks is trading the intersection of crypto and corporate finance cycles. They can amplify trends, but also amplify tail risks. Technical indicators (moving averages, RSI, volume) can be applied, but the fundamentals here are unusual: one must treat the share price partly as a function of crypto price, partly of capital-raising flows.

Conclusion

Crypto-treasury companies have created a new cycle in the markets: one where corporate finance mechanisms are strained and repurposed to pile into volatile digital assets. MicroStrategy has led this charge, showing how a company can “weaponize Wall Street’s own financial engineering” to bet on Bitcoin (www.chaincatcher.com). In doing so, it has spawned imitators worldwide, pushing Bitcoin adoption but also inviting speculation.

For traders, the Treasury Company Cycle offers both opportunity and caution. On one hand, these companies provide a levered vehicle on crypto booms; on the other, they risk extreme drawdowns in crypto busts. The cycle – raise funds when crypto is up, buy crypto, ride it until the tide turns, then potentially get caught holding the bag – must be navigated with care. Historical parallels (1920s trusts, modern bubbles) serve as stark reminders: reflexive bubbles can form and burst unexpectedly (www.chaincatcher.com).

Ultimately, any engagement with these stocks demands rigorous analysis. Data to track includes the companies’ crypto holdings (numbers of BTC/ETH, which are often disclosed), cash reserves, upcoming debt maturities, and the historic volatility of both Bitcoin and the stock. Combining that with technical charts can help gauge when the cycle is heating up or cooling off.

The tale of MicroStrategy and its peers is still unfolding. If crypto continues to rally, they stand to reap massive gains. But if markets sour or a credit window slams shut, they could also tumble hard. For the technical trader, these are high-beta assets: when they move, they move big. Respect their creative financing — and their underlying gamble — as you trade the treasury cycle.

Sources: Company filings and news; blockchain analysis; iOSG Ventures research (medium.com) (medium.com) (medium.com) (medium.com); crypto press (www.panewslab.com) (www.panewslab.com); crypto industry blogs (graphlinq.io) (graphlinq.io) (www.chaincatcher.com).