Franklin Templeton Warns of ‘Dangerous’ Feedback Loop Risk in Corporate Crypto Treasury Strategies

As more public companies load up on Bitcoin, Ethereum, and Solana to power growth and attract capital, Franklin Templeton is raising a red flag. In a new report, analysts from the firm’s Digital Assets division said the corporate crypto treasury boom—while innovative—comes with serious structural risks, particularly the threat of a negative feedback loop that could unravel quickly in a downturn.

Inspired by MicroStrategy’s high-profile Bitcoin strategy, companies across sectors have been issuing everything from convertible notes to preferred equity to fund large crypto purchases. So far, at least 135 public firms have adopted this playbook using Bitcoin alone, according to Bitcoin Treasuries data. Firms like Metaplanet, Twenty One, SharpLink, Upexi, and Sol Strategies are among those extending the strategy to Ethereum and Solana, often combining staking with asset appreciation to drive value.

Franklin Templeton analysts acknowledged the appeal. In bullish markets, crypto volatility can actually work in companies’ favor. For example, convertible notes and other instruments gain value with volatility, giving companies flexibility and premium capital-raising options. In many cases, firms are able to issue shares at prices higher than the net asset value (NAV) of their holdings, making the model accretive—even amid sharp price swings.

But the risks are baked in.

“The volatility that enables this model is also what makes it fragile,” the analysts noted.

If crypto prices fall and a company’s market value drops below its NAV, issuing new shares becomes dilutive, turning off investors and stalling fresh capital inflows. That can break the upward momentum and, in worst cases, force companies to sell assets just to stabilize share prices—triggering a cascade of further price drops and eroding market confidence.

In that scenario, the feedback loop reverses, creating what Franklin Templeton called “a particularly dangerous situation.” The firm emphasized that long-term success hinges on companies maintaining a consistent premium to NAV, managing market sentiment, and navigating through inevitable periods of volatility.

Analysts added that this model reflects a new phase in institutional crypto adoption—but warned it’s far from bulletproof. If the premium persists, it could be sustainable. But any prolonged bear market or sharp downturn could rapidly spiral into financial distress.

Other voices in the space share the concern. Presto Research recently highlighted the risk of collapse or forced liquidation among corporate crypto treasury firms, although it noted these risks are more complex and less extreme than past crises like Terra or Three Arrows Capital. Meanwhile, Coinbase Institutional’s David Duong said corporate leverage in crypto isn’t an immediate threat, but could become a systemic issue if left unchecked.