Treasury Companies: Risks You Need to Understand

Welcome back to Old Man New Money. I'm Douglas Borthwick and today we're wrapping up our module on corporate treasury strategies with the most important episode, risks. We've covered the models, strategies, Bitcoin accumulation, BitMines Ethereum thesis, Sol Strategies Infrastructure play. We've talked about the investment cases, the financial engineering, the strategic positioning. Now we need to talk about what can go wrong, because treasury companies are not conservative investments. These are high risk, high volatility bets on crypto assets with leverage, premiums and operational complexity layered on top.

And if you don't understand the risks, you're going to lose money period. So today we're going to go through every major risk category, the obvious ones and the subtle ones, the market risks and the company specific risks, everything that can derail these investments. This isn't FUD. This is due diligence. And if you can't stomach these risks, you shouldn't invest in treasury companies. Here's your 30 second version.

Treasury companies face seven major risk categories, asset price risk because their leverage bets on crypto, NAV premium compression risk because the market premium can evaporate, dilution risk from constant capital raises, debt and leverage risk in bear markets, regulatory and legal risks around crypto, key person risk around visionary leaders and execution risk on their strategic plans. These risks compound. In bull markets, everything works. In bear markets, everything breaks simultaneously. Only invest what you can afford to lose completely. We're in late 2025. Bitcoin is just off of near time highs. Ethereum has come off as well.

Solana also lately come off. Treasury company stocks have taken a beating, but they're still up. And this is exactly what you need to understand risks. Know when everything's going up, when everything's going up, risks seem theoretical and the market turns risks become very real, very fast. I've been in finance over 30 years. I've seen every cycle, the dot com crash, the financial crisis, multiple crypto winters. The pattern is always the same. During bull markets, nobody wants to hear about risks. During bear markets, it's too late.

So we're doing this now while you still have time to make informed decisions about position sizing, risk management and whether these investments belong in your portfolio at all. Let's start with the most obvious risk, the price of the underlying crypto asset. If Bitcoin crashes, strategy crashes harder. If Ethereum crashes, bit mine crashes harder. If Solana crashes, Sol strategies crashes harder. And this isn't speculation. This is mathematical. These companies have betas greater than one to their underlying assets. Strategies beta to Bitcoin is around 3.7. That means when Bitcoin moves 1%, MSTR moves about 3.7% on average. Why the leverage?

Because of the NAV premium, because of the debt, because of the financial engineering. All of these amplify movements in both directions. Let's run a scenario. If Bitcoin's at $74,000 and strategies cost basis is around 74,000, roughly break even on the Bitcoin holdings, but if Bitcoin was to fall 50% to $37,000, strategy's Bitcoin portfolio would lose about $23 billion in value. But they have $8 billion in debt that doesn't shrink, so net asset value gets crushed, plus the NAV premium likely would compress in a bear market. You get a triple hit. Bitcoin down 50%, NAV premium compression and beta driven amplification.

This stock could easily fall 70% or 80%. And this has happened before. In 2021 to 2022 bear market, Bitcoin fell around 70% from the peak. MSTR fell over 90%. That's the risk. If you can't handle that level of drawdown, you shouldn't own treasury companies full stop. Now, let's talk about a more subtle risk that most investors don't understand. NAV premium compression. Strategy trades at a premium to net asset value. Let's just say it's 40%. That means that if their Bitcoin holdings are worth $60 per share, the stock trades at $84.

You're paying that premium for management's track record, for Bitcoin yield potential, for institutional access, for liquidity, but that premium is not guaranteed. It fluctuates based on market sentiment, competitive dynamics and execution. In bear markets, premiums often compress. Investors get scared. They want direct exposure to the asset, not leveraged bets. ETFs become more attractive because they have no premium. The gap narrows or disappears. And here's the insidious part. You can lose money even if the underlying crypto stays flat or goes up slightly.

In one scenario, let's say Bitcoin was to stay at $74,000 flat, but strategy's premium compresses from 40% to 20%. The stock would then fall from $84 to $60 times 1.2, which is $72. You lose 15% while Bitcoin is unchanged. This has happened multiple times in 2023. Premium is range bound, but MSTR underperformed because the premium compressed. With sole strategy, this risk is amplified because they're newer and smaller. The premium is based on promises of future execution. If they miss targets or lose key clients, the premium could vanish entirely. You need to monitor NAV premium as closely as the underlying asset price.

Now let's talk about dilution because this is how treasury companies actually destroy value long-term if they're not careful. These companies constantly issue new shares to raise capital to buy crypto. Strategy has issued billions in new equity. Bitmine is even more aggressive. Solve strategies is just getting started. When done correctly, these raises are equative. They increase crypto per share, which justifies the dilution. But when done poorly, they're massively destructive. You issue shares below NAV. You don't buy enough crypto to offset dilution. Is this thing shareholders get screwed?

Many teams report Bitcoin yield or ETH yield or SAW yield to show whether they're being equative or dilutive, but you need to verify their math. Sometimes they use creative accounting to make dilution look better than it actually is. The risk is that management becomes addicted to raising capital. They're constantly issuing shares because they can. In bull markets, the premium allows this. In bear markets, it becomes catastrophic. Watch share count growth carefully. Watch per share metrics carefully. If per share holdings are declining, that's dilution destroying value.

Let's talk about debt because this is the risk that can bankrupt these companies in severe bear markets. That debt is secured by Bitcoin holdings collateralized. Looks safe, right? But debt works in reverse in bear markets. If Bitcoin falls 70%, their collateral still covers the debt, but barely. That's less than two times over collateralized. Now debt covenants kick in. Lenders get nervous. They might demand additional collateral. They might accelerate repayments. They might force asset sales. And here's the nightmare scenario. You're forced to sell Bitcoin at the absolute worst time to satisfy debt obligations. You crystallize losses.

You reduce your holdings permanently. The financial engineering that works so well on the way up destroys you on the way down. It might has less debt than strategy, but they're issuing preferred stock aggressively. Preferred stock has fixed yields and priority over common. In a severe bear market, preferred holders get paid first. Common shareholders get wiped out. Sold strategies has less leverage overall, but they're also smaller with less institutional supports. Access to capital in a crisis might be limited. The risk is not current leverage ratios.

The risk is what happens to those ratios in a severe downturn and whether management has a discipline of financial flexibility to manage through it without catastrophic force selling. Now we get into regulatory risk, which is probably the scariest because it's so unpredictable. These companies are in regulatory gray zones. Treasury companies are new. The SEC hasn't explicitly blessed or rejected the model. It just exists. But what if regulators decided that accumulating crypto at scale with corporate leverage poses systemic risk? What if they impose capital requirements or restrict certain financing activities?

What if the SEC decides that some of these securities are actually offering unregistered crypto exposure? What if they force structural changes? What if staking gets classified as a security offering? That would blow up sold strategies business model. Or would it? What if Congress passes legislation restricting corporate crypto holdings? Unlikely but not impossible. What if international regulators take action that affects these companies' ability to operate globally? The problem with regulatory risk is you can't quantify it. You can't hedge it.

You just have to accept that the rules could change and your investment could be impaired through no fault of management. Tax treatment's another wild card. How are these companies' activities taxed? How are shareholder gains taxed? Changes to tax law could impact valuation significantly. The only mitigation is to not invest more than you could afford to lose completely if regulatory changes destroy the business model. Let's talk about key person risk because it's acute with Treasury companies. Michael Saylor is strategy. He's the visionary. He's the public face. He's the strategic architect.

If something happened to him, would the company continue executing at the same level? Would the premium hold? Tom Lee is critical to BitMang. He's the Wall Street credibility. He's the Ethereum thesis. He's the institutional relationships. Without him, does the company have the same strategic direction and market confidence? Solve strategies is newer, so key person risk is more distributed. But as they grow, that will concentrate around key executives. If the CEO or CTO leaves, could they maintain service quality and client relationships? This isn't morbid speculation.

Key person risk is a real factor in concentrated strategic bets, and Treasury companies are extremely concentrated around their strategic vision and leadership. Public companies have secession plans, but Treasury companies' success depends so heavily on the vision and execution of specific individuals that secession may not be smooth. Assess whether the strategy is institutionalized or dependent on a single person. The more dependent, the higher the risk. Now let's talk about execution risk, which is different for each company. For strategy, execution risk is mostly about capital markets' access.

Can they continue raising billions in accretive terms? In a bear market, can they still access capital? Can they maintain Bitcoin yield targets? If market conditions change and they can't raise capital, the entire growth model stalls. The premium compresses because the story is based on continuous accumulation. For Bitmine, execution risk is about hitting that 5% goal. They need to raise another $12 billion to buy 3 million more ETH that's aggressive. Can they actually do it? And can they do it without destroying shareholder value through excessive dilution? If they fall short of 5%, does the strategic narrative break?

Does the premium disappear because the bold vision didn't materialize? For solved strategies, execution risk is operational. They're running validator infrastructure at scale. They need to maintain 99.995% uptime. They need to keep winning institutional clients. They need to manage complex technical systems without failures. Any major operational incident, slashing events, security breaches, client losses, these can be catastrophic for a business where reputation and trust are everything. Plus, solved strategies need to scale. And as they grow, complexity increases. Can they maintain quality while scaling? That's unproven.

Each company has unique execution challenges and failure to execute destroys value faster than market downturn because it's company specific with no recovery path. Let's talk about competition and technological disruption. What if Ethereum changes staking mechanics in a way that makes BitMind's model obsolete? What if Bitcoin mining companies pivot to become Treasury companies that compete with strategy? What if a major financial institution launches a better product? Blackrock or Fidelity creating a Bitcoin or Ethereum product that competes directly but with lower fees and higher trust? ETFs are the obvious competitive threat.

Why buy MSTR with a 40% premium when you can buy a Bitcoin ETF at any view with a 0.2% annual fee? Why buy BMNR when Ethereum ETFs exist? The answer is usually leverage and Bitcoin yield accretion. But if ETFs perform well enough, the premium might not justify the risk. Technological risks are blockchain specific. What if there's a critical vulnerability in Bitcoin, Ethereum or Solana? What if a competing blockchain overtakes them? For solved strategies specifically, what if Ethereum scales better than expected and Solana loses its performance advantage? The whole thesis breaks. You're not just betting on these companies.

You're betting on their chosen blockchain remaining dominant. That's a multi-decade bet with tremendous technological uncertainty. Here's a risk many investors miss. Everything is correlated. All three Treasury companies move together when crypto markets move. Bitcoin, Ethereum and Solana are highly correlated. So strategy, BitMind and Sol strategies move together. You might think you're diversified by owning all three, but when crypto winter comes, all three crash simultaneously. Your diversification is an illusion. Plus, these companies are highly concentrated bets. One hundred percent of strategy's value is Bitcoin.

One hundred percent of BitMind's value is Ethereum. Sol strategies is one hundred percent Solana. There's no diversification within the company, no buffer, no hedge, pure concentrated exposure. This is fine if you understand it, but many investors treat these like normal stocks with business diversification. They're not. They're leveraged single asset bets. In portfolio construction terms, these should be treated like speculative positions. Small allocations, not core holdings, not retirement money. Here's what makes Treasury companies especially dangerous. The risks compound.

In a bear market scenario, Bitcoin crashes so asset value falls, NAV premium compresses as investors panic, debt covenants tighten, forcing consideration of asset sales, regulators get nervous and consider restrictions, management can't raise capital on adverse conditions, execution suffers, operational issues emerge. All seven risk categories hit simultaneously. Each one amplifies the others. A 50 percent Bitcoin drop becomes an 80 percent stock drop because of its compounding risk. And this is why Treasury companies are not for conservative investors. In good times, risks seem theoretical and bad times they all materialize at once.

So how do you manage these risks if you're going to invest in Treasury companies? Position sizing is critical. These should be small positions relative to your portfolio. Five percent max, probably less. Think of it as your speculative bucket. Smaller cost averaging works better than lump sum. Spread your entry over time, don't go all in at once. Monitor the key metrics constantly. NAV premium debt ratio share time per asset holdings. If any of these deteriorate, that's your signal. Have exit rules predetermined. If premium compresses below X, you sell. If debt coverage falls below Y, you sell. Remove emotion from the decision.

Diversify within the category if you're bullish on multiple blockchains. Learn strategy and solve strategies if you believe in both Bitcoin and Solana. Don't put everything in one. Consider option strategies if you're sophisticated. Selling covered calls against positions, buying puts for downside protection, these can mitigate some volatility. Most important, never invest money you can't afford to lose completely. These companies who go to zero in a severe enough scenario, it's unlikely, but possible. Let me be direct about who should not invest in Treasury companies. If you can't handle 70% or 80% drawdowns, don't invest.

This volatility is guaranteed eventually. If you need this money for near-term expenses, don't invest. You might be forced to sell at exactly the wrong time. If you don't understand crypto fundamentals, don't invest. You need to understand what you own. If you're investing with borrowed money, absolutely don't invest. Leverage is suicide. If you can't monitor these positions regularly, don't invest, they require active oversight. If you're retired and dependent on this capital, don't invest. This is not suitable for conservative capital preservation. If you're investing emotionally or following hype, don't invest.

These require cold, rational risk assessment. A huge percentage of people who bought Treasury companies in 2020 and 2021 held through the 80% to 90% crashes in 2022. They couldn't handle the volatility. Don't be that person. Conversely, who might consider Treasury companies? If you're young with long-time horizons and can write out volatility. If you believe in the long-term thesis for Bitcoin, Ethereum, or Solana and want leveraged exposure. If you have speculative capital specifically allocated for high-risk, high-reward bets. If you understand the risk completely and accept them.

If you're comfortable with active position management and have exit rules. If you're diversified enough that losing this entire position wouldn't materially impact your financial life. Even then, small positions. This is not a core portfolio holding. This is a satellite position for people who understand and accept extreme risk. What should you do right now? Stress test your positions. Model what happens if Bitcoin, Ethereum, or Solana fall 50% or 70%. Can you handle that? Calculate your position size as a percentage of total portfolio. If it's over 10% consider whether that's appropriate for your risk tolerance. Set up monitoring systems.

Google Sheets, portfolio apps, whatever works. Track NAV premium, debt ratio, share count, growth, weekly. Write down your exit rules before any crisis. At what premium compression do you sell? At what price level? Have the plan before you need it. Review your overall crypto exposure. If you own Bitcoin directly plus strategy plus other crypto stocks, you might be more concentrated than you realize. Have conversations with family or advisors about your risk tolerance. Make sure everyone understands what you're investing in. Treasury companies are fascinating financial innovations.

They've created a new way to access crypto through traditional markets. They delivered extraordinary returns during bull markets, but they are not conservative investments. They are leveraged, volatile, concentrated bets on emerging asset classes with regulatory uncertainty and complex risk profiles. Every single risk we discuss today is real. Asset price crashes, premium compression, dilution, debt spirals, regulatory action, key person events, execution failures, all of these will happen to some treasury company at some point, maybe multiple at once. The question is whether you can handle it when it happens.

Whether you've sized positions appropriately, whether you have the discipline to stick with your risk management rules. I own both strategy and solve strategies. I believe in the long-term thesis for Bitcoin and Solana, but I own them as speculative positions. I monitor them constantly and I'm prepared to exit if my rules are triggered. That's the approach you need if you're going to invest in treasury companies, not hope and pray, not set it and forget it. Active risk management with clear rules and position sizing discipline. This wraps up module three in corporate treasury strategies.

We've covered the models, the opportunities and the risks. Now you have the complete picture to make informed decisions. Next module, we're diving into something completely different. Real world asset tokenization, how to tokenize real estate, commodities, bonds and other physical assets, the infrastructure, the legal frameworks, the business models. That's where digital securities and the real economy truly converge. I'm Douglas Porthwick. This is Old Man New Money. If these four episodes helped you understand treasury companies, share them with someone who's trying to learn.