The rise of crypto currencies in recent years may be one of the more noteworthy financial developments of our time. Now, A growing number of companies are raising funds in the capital markets for the express purpose of accumulating cryptocurrencies as treasury assets. In the following guest post, Suresh Ellawala, Client Relationship Director at Price Forbes, takes a look at the recent rise of crypto treasury companies and considers the implications, including the risks potentially involved for directors and their insurers. I would like to thank Suresh for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Suresh’s article.
Introduction
Cryptocurrency. In some ways, we are looking at science fiction. Satoshi Nakamoto’s original white paper envisaged far more than the beginning of a decentralised payment system. It was a move to take control of currency away from governments and central banks – arguably, a new definition of money, as far removed from GDP based fiat currency as it is itself from barter.
Away from Bitcoin (BTC), the crypto world comprises tradeable digital assets related to many phenomena; from real world asset tokenization, through established blockchains used by the finance sector, through cutting-edge AI innovation projects, to internet memes. So, to the science fiction part – people trade, twenty-four hours a day, in assets that do not exist except on a distributed ledger, have no intrinsic value apart from sentiment, and fortunes are made and lost. People post their holdings on social media and are kidnapped for them. Governments stack huge hoards confiscated from organized criminals. Boards of companies bet all of their shareholders’ money on these assets that most still do not understand at all.
In BTC’s case, there is some irony that something designed to take power from financial institutions and governments is now seeing adoption and monetization by those very institutions and governments, at a rate faster than the adoption of any asset in history. BTC and other cryptocurrencies have become speculative investments in their own right. IBIT, Blackrock’s BTC ETF, has been the fastest growing ETF in history, reaching USD70Bn of assets under management 341 days after launch. We have a population competing for assets that have no intrinsic value, and some of those assets are increasing in value exponentially (as well as shedding value just as quickly).
As always happens, corporates have seen opportunity and entered the fray.
In this article, I explore why this is happening, how it is happening, and muse on some of the risks – risks that could, I believe, translate directly to boards of directors of so-called cryptocurrency treasury companies.
What is a Crypto Treasury Company?
For the moment, this is a company that, as its primary activity, holds speculative cryptocurrency as an investment. It can derive shareholder value both by capital appreciation, and from income streams delivered by some cryptocurrencies.
Why are companies moving to a crypto treasury model? Fundamentally, companies have seen an opportunity to build a business model around investment in cryptocurrency. This has several effects, not least the fact that it can offer investors access to crypto investments not otherwise catered for by their national regime.
In one sense, we have seen regulators lag, failing to allow timely creation of traditional financial investment mechanisms for these emerging assets. Crypto treasury companies have seen investor demand and filled that demand gap with some interesting financial engineering.
In some ways, these companies are more akin to permanent capital vehicles such as MLPs (for energy infrastructure investing) or REITs (for property investing). These are well-known to insurers, and to investors offer a different approach to investing in long-term, illiquid assets that may be otherwise inaccessible to those investors. As we will see, there are substantial differences between infrastructure assets and cryptocurrencies.
A crypto treasury company is both a listed company and a capital markets vehicle for direct exposure to a specific cryptocurrency – offering a leveraged play on that asset that is different to holding it directly or through an ETF. With that come some upside advantages, but also some risks.
The Macro Crypto Environment
Investor Sentiment
Investor appetite for crypto is rising. Investment returns from crypto can be extreme and financial institutions have entered the space in the US via SEC approved ETFs. SEC approved the first BTC ETFs on January 2024. This is not just seen in Bitcoin, the most famous of all digital assets; an Ether (ETH) ETF was approved by the SEC in July 2024. Grayscale (and I refer to them later) launched a Ripple (XRP) Trust on September 12 2024. This is a marked departure from the SEC under Jay Clayton – when I wrote about the Ripple case in January 2021, the SEC had turned down every application for cryptocurrency ETFs to that date.
Investor sentiment obviously includes increased retail interest. According to www.security.org, at the end of 2024 around 30% of US adults were thought to own crypto assets, up from 15% in 2021. Combined with institutional appetite, this coagulates into great capital availability. In the first half of 2025, corporations raised USD98Bn to buy digital assets, with another USD50Bn+ pledged by 139 (and perhaps more, at time of writing) companies since June. As interest rates come off recent highs, and currency devaluations by central banks continue – arguably all to alleviate historically enormous national debt burdens – capital flows to riskier assets.
Strategy (NYSE: MSTR) is the largest of all crypto treasury companies, being the largest company outside of the S&P500. It may never make it in (some argue that it looks more like an investment fund than a recurring revenue company), but this is still a sign of the times. Strategy was founded by Michael Saylor in 1989 and went public in 1998. In March 2000 the stock declined by 62% in one day due to accounting errors, resulting in an SEC investigation. It operated in relative obscurity for the next twenty years. In August 2020, Saylor moved to a BTC treasury strategy. Five years later, it is the biggest US company outside of the S&P 500. In November 2024, it was briefly amongst the largest 100 US companies by market capitalization, and today is still the 226th most valuable company globally.
Governmental Adoption and Regulatory Loosening
Next, we have the current US administration’s adoption of digital assets. An example is the Genius Act, and the rush to mint Stablecoins (these are outside the scope of this article, but well worth examining). President Trump himself is endorsing the crypto treasury trend – World Liberty Financial has announced a USD1.5Bn treasury anchored by its own token, WLFI. The company is majority owned by the Trump family.
We then have some regulatory loosening, or at least some small clarifications happening around the asset class. The outcome of the Ripple case is that crypto is apparently not necessarily a “security” in every case. Regardless, treasury companies can (for now) allow consumer investment in speculative crypto assets without many of the necessary administrative and regulatory burdens imposed for dealing in securities.
Leverage and Equity Financing
A treasury company can adopt flexible leverage strategies to invest in crypto – allowing outsize returns in a rising market.
It can also use equity funding by issuing different classes of shares to raise investment money; Strategy pioneered this approach and is also a structurally leveraged BTC play, today.
Alternative Income
BTC’s original and enduring trait is that it is a “proof of work” crypto asset. It must be mined – and there are a finite number that ever can be. This mining becomes more difficult and costly as time goes on, for ever smaller rewards. It exists to be held and traded, not to earn holders regular income beyond capital appreciation. However, utility networks like Solana allow users to “stake” their coins, locking them on the network, which helps to validate blockchain transactions. If you stake your coins, you earn more coins. Tom Lee’s Ethereum treasury company, Bitmine Immersion Technologies (NYSE: BMNR) aims to generate an annual staking yield on its ETH holdings. This, given that it holds over 2.1m ETH at a current value (at writing) of over USD9.7Bn, is a significant number.
Risks to Directors and Insurers
I see a number of risks inherent in all of this that can have an impact for directors and their insurers.
Non-Expert Boards
We have seen many instances of boards pivoting from their expertise to a crypto strategy. We have seen a number of such pivots, and also private crypto enterprises merging with listed companies from a different sector, to access capital markets. The risks inherent in such approaches have been seen before by the D&O market; for example, claims alleging fraud or mismanagement of and after reverse takeovers remain a feature of the space.
Michael Saylor is acknowledged as one of the most significant BTC whales in the market. Saylor is an expert in crypto (or at least BTC). Is everyone else following his lead the same?
Use of Leverage and Creative Equity Financing
Creative financing from convertible notes and a variety of stock shares and options is a playbook that CEOs seem to be eyeing. And we are seeing a “flywheel effect”. Treasury companies issue stock to buy crypto, and as these assets rise, they rise at an amplified rate in relation to the USD denominated gains in their treasury holdings. This allows the issue of more stock at a higher price, to buy more crypto. The risks are clear from a D&O standpoint – shareholders buy into extreme downside risk if and when the crypto market turns – which so far, it always has.
This ties to leverage, as this strategy relies heavily on convertible debt structures that arbitrage volatility mispricing. When a treasury company issues convertible bonds, institutional investors buy them and short the stock to manage their own risk. This of course transfers risk to retail investors who do not risk manage in the same way, and who may not understand the mechanics at play. This, of course, for directors, is where regulators and plaintiffs may make some compelling arguments in a downturn. Claimants do like to allege that corporate funding strategies were high risk and not disclosed as being so, especially when shareholders’ rights may also be in the mix.
Volatility and Valuation
Arguments that BTC is an asset really more akin to gold is contradicted by volatility in spot markets: a sale of 24,000 BTC on August 24th led to a 10% decrease in its value. Given that there are 19m BTC in circulation, and that this move was a sale of 0.13% of that, we can see that whilst historically high buying has ground the price up, small sales can move the market lower, very quickly.
This market moves fast, as well. In the week or so since I started writing this article, BTC is down around 13%, ETH is down and Solana (SOL) is down around 18%. The NASDAQ 100 is flat over the same period. When I first started thinking about writing this article in mid-August, that week had seen significant gains in all three of these crypto assets.
There is a systemic collapse risk, as well. In BTC, treasury companies now hold almost 5% of the supply in circulation. Strategy alone controls 2.7%. This means that the very activities of these companies can create market-making dynamics – I cover some of the symptoms of this elsewhere. Effectively, share prices can suffer the effect of leverage without the visibility of traditional leverage. We have not yet seen this as a widespread phenomenon, but if the BTC price collapses, directors may need to deal with investors seeing far greater losses than those who invested in an ETF.
There is also equity valuation risk. Strategy owns USD73+Bn of BTC yet is valued at USD93Bn at time of writing. We are looking at sentiment-based valuations, on top of underlying assets that are themselves sentiment-based. As we know, valuations vulnerable to volatility on a large scale are attractive to plaintiffs.
Other cryptocurrencies are far more volatile than BTC, and treasury companies now exist in Ethereum and other “Altcoin” crypto assets. One third of crypto treasury companies trade below the value of their crypto holdings. This appears to undercut the logic of the playbook. It also stops the emulation of Strategy, as without outsize equity inflation, more stock cannot be issued to buy more coins and pay down existing debt. Further, a number of crypto treasury companies are using leverage to fund share buybacks. The D&O market is well-attuned to buybacks; and this may be of some concern as it may indicate faltering demand from investors for these stocks.
EThZilla (NASDAQ: ETHZ) was a biotech company that rebranded and bought $460m of ETH. It has seen a greater than 70% decrease in its stock value since August. It has just borrowed $80m against its crypto holdings to fund a $250m share buyback.
Fraud, Shilling, and Sentiment Manipulation
Behaviours that are heavily regulated in the public stock market are normal in crypto. Developers and investors hype and even lie about developments to attract investment. Conversely, we see many purposefully talking down an asset in order to enable them to buy in.
A quick dive into YouTube or X can see CEOs of treasury companies giving extremely optimistic predictions for the prices of the digital assets that their companies hold. Whilst this is not predicting their own share price – if the only asset their company holds is the crypto asset being promoted, how far are we from guidance disclosures, really? Further, the risks to directors from unmanaged statements in the media have been well-established by litigation in the tech sector, so this is not an unknown risk to D&O insurers.
Custody Risk
How are assets held securely? The FTX (a crypto exchange) collapse saw investors lose enormous amounts, and crypto is a valuable commodity with extreme hacking risk. All crypto exchanges are under constant attack, and crypto treasury companies need to have extremely robust storage policies for their assets. What happens if a board are alleged to have not taken this seriously enough after a significant theft of assets? Or, perhaps worse, said that they took security seriously, and turned out not to have done?
Regulatory Headwinds and KYC
Regulators are not all happy about consumers having cryptocurrency exposure. China, for example, still deems crypto illegal. Also, the very nature of crypto as a decentralized financial asset has made it attractive to users who wish to avoid normal banking structures that have controls in place, including around money-laundering and proceeds of crime. Treasury company equities are really just a proxy for crypto, and as such perhaps open to uses/transactions not envisaged by boards.
Also, regulatory response has lagged – as most crypto treasury companies are not registered as investment companies, despite being such, to all intents and purposes. Also, I have questions as to whether traditional audit really works for business models such as these, and how much investors can rely on such checks and balances.
I see risk to directors that as regulators (or plaintiffs) catch up, many more questions will be asked about treasury company strategies, controls and disclosures.
Use of Leverage and Creative Equity Financing
Creative financing from convertible notes and a variety of stock shares and options is a playbook that CEOs seem to be eyeing. Funding is often esoteric – In the UK, SWC’s IPO saw the founder pledge to invest from his own tax-wrapped UK investment account. SWC owns just over ten BTC. Its market cap spiked after the disclosure of their strategy, and has since been in a constant decline, now at a less than third of its peak valuation.
Of perhaps even more relevance to directors, and risk-taking, is the “flywheel effect”. Treasury companies issue stock to buy crypto, and as these assets rise, they rise at an amplified rate in relation to the USD denominated gains in their treasury holdings. This allows the issue of more stock at a higher price, to buy more crypto. The risks are clear from a D&O standpoint – shareholders buy into extreme downside risk.
This ties to leverage as this strategy relies heavily on convertible debt structures that arbitrage volatility mispricing. When a treasury company issues convertible bonds, institutional investors buy them and also short the stock to manage their own risk. This transfers risk to retail investors, who do not hedge in the same way, and who may not understand the risk mechanics at play. This, of course, for directors, is where regulators and plaintiffs may both ask questions and make some compelling allegations in a downturn.
Avoiding Regulation
The UK is an example here: SWC and others also allow UK citizens, unable to invest in crypto ETFs, and with limited access to crypto exchanges, a far more volatile access to crypto via treasury company stocks. It seems likely that this will attract the attention of UK regulators; especially as there is no requirement for such investment companies to be regulated by the UK’s Financial Conduct Authority. Such dynamics may be extrapolated to jurisdictions beyond the UK, I think.
Changing the Rules
The companies behind cryptocurrencies can change the rules that their own tokens play by. This is less the case in BTC, but many other networks can (and do) alter the dynamics of token earnings, token inflation/dilution, and indeed the type of applications that their networks can support.
Further, blockchain is a highly competitive marketplace. The Ethereum network currently holds institutionalised adoption, but Solana is faster and cheaper to use, and that itself is under attack from Sui, a project from Meta’s engineers. Quantum computing will change this further – it is entirely possible for a network to become obsolete very quickly, and thus the sentiment propping up its token valuation to disappear just as quickly. We have seen hacks and system failures erase the value of crypto tokens attached to the affected network, and other networks quickly take their place, rendering them obsolete and their cryptocurrencies worthless.
Treasury company boards invest very large amounts of money in single projects when they buy a single cryptocurrency. As a business model this single point of failure approach provides some extreme risks to investors, and thus to boards and their insurers.
Excessive Fees for Advisors
Strategy offered 8.5m shares or preferred stock for USD722m in March 2025. Advisors made USD10m in fees – they are unlikely to be dissuaded from such transactions in the face of such a goldmine.
However, what about companies’ own costs of trading and holding crypto, and expenses booked for so doing? Allegedly inflated internal fees/expenses have long been a feature of the board litigation landscape – who remembers the non-traded REIT claims?
The Role of Treasury
Historically, corporate treasury serves the business, rather than being an end in and of itself. As discussed, we have seen companies trade at a multiple of their crypto treasury valuations – this is not really price discovery. In fact, it is reminiscent of investment trusts that in the late 1920s discovered that valuations could correct sharply. The use of leverage can exacerbate the extreme volatility already inherent in most cryptocurrencies. Sophisticated stakeholders may be on board with this – but once retail is on the share register, directors are likely to face claims for redress on downward valuation swings.
Leveraged positions that use the underlying treasury cryptocurrency as collateral (the playbook, as already discussed) could see large scale liquidations, forced asset sales at a loss, and consequently, for treasury companies engaged in higher risk trading strategies, margin calls and serious assaults on shareholder value.
Further, a traditional treasury strategy often involves some diversification, natural hedging or similar. Crypto treasury companies tend to focus on a very limited basket of assets, usually just one. This position is compounded by the fact that those companies earning staking revenues from their holdings generally earn more tokens, not USD.
Competition from ETFs and Trusts
US Investors can (and do) invest in vehicles that give exposure to cryptocurrency with more transparent strategies, fees and custodial arrangements. It is arguable that the crypto treasury company model is already obsolete, and in fact exists solely to give exposure to riskier crypto investment strategies than those provided by SEC-approved ETFs from Blackrock et al, or to provide exposure to crypto by those whose own governments prohibit or restrict such access in their own markets. This arguably gives directors a need and drive to outperform not just ETFs, but other treasury companies in order to attract investors. It may also bring the attention of regulators outside of their own country.
It is arguable that crypto treasury companies are a response to an unmet need (investor access to crypto via a “regular” investment) that is now being met. If regulated ETFs offer less comparative volatility, more regulated operation and scale, and no high-risk creative financial engineering, will we see outflow from treasury company stocks to these ETFs, and a corresponding stall in liquidity/share price for the latter? Will investors be happy about such a dynamic, and look more carefully at the companies they have invested in?
Picks and Shovels
BTC was designed as a mechanism to create money free from central bank and finance control – decentralized finance, or “DeFi”. Its very adoption by centralised financial organisations means that holding BTC through them allows them to earn (substantially) off the asset. I am speculating that some treasury companies may seek to do the same – the old saying is that the real money is not in gold, but in the picks and shovels sold to mine it. The large cryptocurrency exchanges already get this, with fees for trading and conversion that an investor in traditional stocks through an online platform would find very high indeed. There have been fees cases in the space for financial institutions. Fir Tree Value Master Fund v Greyscale Investments LLC involves a hedge fund plaintiff who invested in the Greyscale BTC trust alleging conflicts of interest as well as improper fees. These are worth a topic on their own – but it is easy to see how boards of crypto treasury companies could face similar issues.
In Totality
When we add all of this to the challenges faced by boards anyway, there seems to be some D&O risk. This is an embryonic and fast-growing area for public companies, with extreme price volatility baked into it, and it will be very interesting to see what happens to share prices when the inevitable crypto bear market arrives. What will happen in terms of litigation against/investigation of C-suites? What disclosure rigor does (or indeed can) exist in an asset class that swings wildly on sentiment, frauds and failures of projects?
Availability of D&O Insurance
Currently, it remains a challenge to obtain coverage for crypto companies of all stripes. But as the treasury trend continues, how long will underwriters remain outside of the feeding frenzy? What risk management will they wish to see in order to take risk?
Further, it is conceivable that as this market matures, mainstream companies will hold crypto. Crypto asset manager and strategy firm Bitwise have stated the opinion that one day, all companies will hold part of their balance sheet in digital assets. Given the exponential rate of adoption, this may not be fantasy.
Risk management will be a key issue for boards, in the face of (so far) limited availability of insurance to transfer risk. I can see a situation where serving boards of crypto treasury companies must run a combination of both insurance and downside scenario shock testing: what happens in the case of a 60% price drawdown of their investment and activation of margin calls to exit leveraged positions? Can the company weather such a scenario/bake it into strategy? How are investors communicated with/educated?
Have We Seen This All Before?
Lastly, as an aside, we have seen the volatile of fragile underlying assets packaged up and sold at a premium before. In the 1920s, investment trusts took equities, added multiple claims and leverage, attracted investors with this package and sold their own units at multiples of valuation, often to each other. The results in a downturn were predictable. Sound familiar? Whilst not a perfect parallel, CDOs in the global financial crisis remain a lesson that more of us are likely to remember. The investment market, time and time again, finds way to take assets, leverage them, package them attractively, and sell them to the investors who do not really understand the risks. For boards of companies and their insurers, the results have been predictable.
In terms of this article’s title, I argue that whilst cryptocurrency is an emerging asset class with emerging risks, the actual D&O risk is the same in type – do boards understand their risk, do they plan for it, can they mitigate it and do they brief their stakeholders and regulators properly on all of the above? The extent of the risk, of course, may well be something new – only time will tell. Perhaps what we are looking at here is less science fiction, and more history repeating itself, with a digital twist.