Why Crypto-Treasury Stocks Fall Faster Than the Assets They Hold

Is the “crypto treasury” strategy a double-edged sword for investors?

Not long ago, companies marketed crypto-treasury stocks as a straightforward investment. They purchased shares to gain exposure to Bitcoin (BTC) or other digital assets while benefiting from the liquidity and regulatory oversight of public markets.

In rising markets, this approach was effective. Shares of companies with substantial crypto holdings frequently outperformed the underlying assets, attracting investors who wanted crypto exposure without directly owning tokens.

However, during market declines, this relationship breaks down sharply. Crypto-treasury stocks tend to experience more abrupt downturns than the cryptocurrencies they hold. For example, during recent market pullbacks since October 2025, Bitcoin fell around 30%, while shares of Strategy dropped by roughly 57% over the same period.

This pattern is not random. It stems from the interaction between equity markets, corporate balance sheets and investor behavior. In theory, if a company holds a large amount of crypto, its market value should track the asset’s price. In practice, history tells a different story. During sell-offs, these equities tend to underperform the assets they are meant to represent.

The reason crypto-treasury stocks behave this way is that buying these shares is not the same as buying Bitcoin. Investors are purchasing equity in a leveraged, sentiment-sensitive company that owns Bitcoin. This distinction becomes critical when market risk appetite fades.

Did you know? In bull markets, crypto-treasury stocks often trade at a premium to the value of the crypto they hold, meaning investors willingly pay extra for future accumulation or expectations of financial engineering.

What are investors really acquiring when investing in crypto?

Crypto-treasury companies are operating businesses, not exchange-traded funds (ETFs) or trusts. Even if their primary activity is holding crypto, their shares represent ownership in a corporation and are subject to:

• A capital structure that includes equity, debt and convertible securities

• Management decisions

• Financing requirements

• Risk of share dilution

• Regulatory and governance risks.

By contrast, direct ownership of crypto, either directly or through a spot ETF, provides exposure solely to Bitcoin’s price.

This fundamental difference helps explain the sharp divergences, particularly during periods of market stress.

Did you know? When sentiment flips, the premium to crypto holdings can vanish overnight. The stock falls not only because crypto prices drop but also because investors stop paying extra for the strategy itself.

Premiums, discounts and NAV issues

A central concept behind these moves is net asset value (NAV), which refers to the market value of a company’s crypto holdings minus liabilities, divided by the number of outstanding shares.

In theory, shares should trade close to NAV, but in practice, they rarely do.

Premiums in bull markets

During upward trends, crypto stocks often trade at a premium to NAV. Investors pay extra, expecting the company to:

• Acquire additional crypto efficiently

• Use financial strategies to increase crypto per share

• Benefit from rising equity valuations alongside crypto prices.

Such premiums are driven by expectations rather than tangible assets.

Premium compression in downturns

When sentiment shifts, these expectations evaporate. Many investors begin to prioritize downside protection and balance-sheet strength over growth potential. Premiums contract rapidly, often turning into discounts. As a result, share prices decline not only with the drop in crypto values but also due to a shrinking valuation multiple.

This combination largely explains why these stocks fall more steeply than the underlying assets.

When leverage is embedded in equity

Many crypto-treasury companies finance their holdings through equity issuance, convertible bonds or debt rather than surplus cash. This structure introduces inherent leverage into the equity.

Within the capital structure, equity ranks below debt. When asset values decline, equity absorbs the first and most amplified losses. A 20% drop in Bitcoin, for example, leaves debt obligations unchanged, resulting in a proportionally larger percentage loss for shareholders.

Convertible securities add another layer of complexity, as their value responds to both stock price and volatility, potentially intensifying downward pressure.

Features that accelerate gains in bull markets tend to hinder performance in bear markets.

The disrupted cycle: Issuance turns from fuel into friction

While crypto-treasury stocks offer an amplified flywheel effect during bull runs, they often face a reality check when market sentiment shifts.

In rising markets, crypto-treasury companies often rely on a positive feedback loop:

• Stocks trade at a premium to NAV.

• The company issues new shares.

• Proceeds fund additional crypto purchases.

• Crypto per share rises.

• The premium appears justified.

This cycle reverses in declining markets. As premiums vanish, new issuance becomes dilutive, reducing rather than enhancing value per share. Anticipating this, investors sell in advance, accelerating the decline.

In extreme cases, concerns about liquidity and refinancing can arise, even when the underlying crypto holdings remain substantial.

Equity-market dynamics intensify declines

While the underlying digital assets benefit from global, 24/7 liquidity, the equities that hold them are constrained by the structural limitations and behavioral dynamics of traditional stock exchanges.

Cryptocurrencies trade in deep, round-the-clock global markets, whereas stocks face:

• Lower liquidity allowing large orders to cause outsized price moves

• Rapid risk-off selling by equity investors

• Options-related hedging that amplifies volatility

• Sharp unwinds when positions become overcrowded.

These factors reflect short-term market mechanics rather than the long-term value of the underlying crypto assets.

Did you know? Many crypto-treasury firms used debt or convertible bonds to buy crypto. When prices fall, equity absorbs the damage first, causing the stock to decline far more sharply than the underlying asset.

Corporate and governance risks resurface

During bull markets, investors often overlook traditional corporate risks. In downturns, those risks reappear abruptly. Questions arise around:

• Management’s commitment to further accumulation

• Potential pauses to conserve cash

• The likelihood of additional share issuance

• The transparency of treasury policy.

Uncertainty around these issues increases the required risk premium, further pressuring share prices.

Spot ETFs influence the proxy trade

Before spot crypto ETFs existed, crypto-treasury stocks served as convenient proxies for institutional investors who were restricted from holding crypto directly.

That role has diminished.

Today, investors can access cryptocurrencies such as Bitcoin and Ether (ETH) through regulated ETFs that:

• Track spot prices closely

• Do not issue dilutive equity

• Do not carry corporate execution risk.

During risk-off periods, capital can shift more readily from proxy stocks to ETFs or out of crypto altogether, accelerating premium compression. This structural shift makes premium compression faster and deeper than in earlier cycles.

A clear example: Strategy’s drawdowns

Strategy illustrates the dynamics of crypto-treasury stocks clearly. During market pullbacks since 2025, Bitcoin declined sharply, but Strategy’s stock fell far more.

The reasons, however, were not mysterious:

• Bitcoin’s price decline reduced NAV.

• The stock’s premium compressed.

• Ongoing share issuance raised dilution concerns.

• Equity-market risk aversion intensified.

None of this required Bitcoin to fail as an asset. A shift in sentiment and financing conditions was sufficient.