June 12, 2025
The Crypto trade is heating up with recent news that companies are taking a page out of the MSTR playbook and adding Crypto to their balance sheets. This is being called a “bitcoin treasury strategy,” buying digital assets like bitcoin, ether, and solana in hopes of boosting their stock prices. Roughly 60 firms—including software, marketing, and healthcare companies—have entered the space, with recent announcements totaling over $11 billion in intended crypto purchases.
While these moves often spark short-term stock rallies, analysts warn of serious risks. Crypto’s volatility could amplify losses if prices fall, especially for companies using leverage. Some fear panic selling could accelerate market downturns. The trend has drawn Wall Street’s attention, with banks rushing to finance corporate token buys.
Not all companies are seen equally. Analysts argue that firms led by seasoned crypto proponents like Saylor or Jack Mallers (Twenty One Capital) are more likely to survive downturns due to stronger investor confidence and fundraising ability. In contrast, “zombie” companies hoping to ride bitcoin’s momentum may struggle during downturns as the presence of bitcoin is likely to amplify directional volatility on swings in sentiment and risk appetite.
Our Take
The primary risk being described here is “Herding”.
Herding is the tendency of investors to mimic the trades of others during periods of heightened market enthusiasm or fear, which can amplify asset mispricing, fuel bubbles, and increase systemic risk.
The problem with herding is it derives from perceived rather than actual information through the mechanics of information cascades. An information cascade occurs when people ignore their own knowledge or signals and instead mimic the decisions of earlier actors, believing those decisions reflect superior or more accurate information.
The practical implications are that trades build and unravel with extreme speed and amplitude. For example, if we consider the Bitcoin chart below, the recent price action shows consolidation between the $74K and $107K levels. Classical technical analysis projects and upside target above $140K on a break-out above the $107K level.
If herding behavior is present, price is going to get to that $140K level very quickly with an elevated potential to overshoot to the upside. That in turn creates a FOMO dynamic if the momentum surge is powerful enough and the herd will then unmoor the asset from its intrinsic value even further. When the buying stops, the potential for panic selling is elevated and since price dynamics are rooted in enthusiasm rather than real analysis, there’s no framework for re-establishing value when negative price trends are in force. This dynamic could likely be made worse by the general lack of infrastructure around bitcoin. Put another way, it’s much harder to sell Bitcoin than it is to buy it and as a currency, its volatility works against it in periods of stress. Since it can take days to settle transactions with crypto, the price has potential to move wildly and complicate its role as a medium of exchange.
Conclusion
Bitcoin continues to gain popularity as an asset. Its speculative nature is enticing especially in periods of optimism, but its dynamism is also a risk when financial markets experience volatility. When financial assets are bought on enthusiasm, they become unmoored from their intrinsic value because they are being used for speculation rather than because of utility and that has potential to elevate systemic risk in financial markets. We strongly advise that investors consider how they would hedge material drawdowns in crypto assets.
Data sourced from ETFAction.com and FactSet Research Systems Inc.
