The corporate embrace of Bitcoin was hailed as a bold innovation in treasury management. But what if this innovation is, in fact, a hidden risk amplifier, quietly pumping leveraged volatility into the portfolios of the very institutions tasked with safeguarding public wealth?

A digital asset treasury (DAT) company is a publicly traded firm that holds significant cryptocurrencies, such as Bitcoin, on its balance sheet as a primary treasury reserve, meaning that its valuation is heavily driven by these digital assets. Unlike passive exchange-traded funds (ETFs), DATs offer investors indirect exposure through stock ownership and actively employ corporate finance strategies, such as using debt or equity offerings, to acquire and manage their crypto reserves.

My new empirical research provides the first comprehensive evidence that DATs firms do not merely adopt crypto risk. They systematically compound it, creating a dangerous and opaque leveraged exposure for their equity investors. This structural problem has profound implications for financial stability, but its most immediate threat is to institutional investors, particularly U.S. public pension funds, which are increasingly exposed to this risk, often without understanding it fully.

This threat to investors is amplified as it grows in scale. A companion study documents an increasing trend of U.S. public pension fund allocations to DAT firms such as Strategy Incorporated, previously known as MicroStrategy (MSTR). Consequently, the retirement funds for teachers, firefighters, and other public employees are being directed into investments that are fundamentally and quantitatively riskier than perceived. This trend is accelerating. The fact that public companies collectively hold over $110 billion market exposure indicates that this high-risk corporate model is proliferating, not receding.

My analysis of seven DAT companies over 250 trading days reveals a clear pattern of risk amplification, as evidenced by four key findings.

First, although Bitcoin itself is volatile, with an annualized volatility of 39 percent during the study period, DAT stocks are far riskier. The annualized volatility estimates how much the asset’s price is likely to deviate from its average return over the course of a year. MSTR, the canonical DAT firm, exhibited a staggering 76 percent volatility, an amplification ratio of 1.95 times that of Bitcoin itself.

Second, across the DAT universe, firms such as MSTR exhibited a Bitcoin beta—a measure of an asset’s volatility relative to the market—greater than 1.0. For instance, MSTR’s beta was 1.34, which means for every 1 percent move in Bitcoin’s price, MSTR stock moves, on average, 1.34 percent in the same direction. These are not simple crypto proxies; they are de facto leveraged Bitcoin instruments.

Third, the damage is most acute during market stress. In 13 major Bitcoin sell-offs, MSTR’s average decline was 1.60 times worse than Bitcoin’s. It was also worse in the five days following a large sell-off; although Bitcoin showed modest recovery, MSTR continued to fall. This demonstrates that DAT strategies exacerbate, not hedge, financial distress.

Finally, perhaps the most critical finding for a fiduciary is that over half—52 percent—of the total risk in a DAT stock such as MSTR is idiosyncratic, which is the risk tied to the firm’s operations and governance and non-Bitcoin business lines. An investor seeking pure crypto exposure is instead buying a risky hybrid: a leveraged Bitcoin bet wrapped in a bundle of firm-specific hazards.

This creates what is termed a “double-leverage” problem that should alarm any institutional investor bound by the prudent investor rule, which requires fiduciaries to manage trust assets with the same degree of care as they would in their own personal affairs, and a duty of care. The Employee Retirement Income Security Act (ERISA) sets a high bar for managing pension assets, requiring a focus on diversification and the prudent management of risk. DAT investments flout these core principles.

The core of treasury management is capital preservation and liquidity. Bitcoin is its antithesis. My analysis shows Bitcoin’s five percent daily value at risk is -5.01 percent, which is more than 125 times the -0.04 percent value at risk of a 3-month Treasury bill. This figure means that there is only a one in 20 chance that a daily loss will be larger than the calculated value at risk level. Adopting this asset for treasury reserves is a fundamental violation of sound principles and inconsistent with a fiduciary’s duty of loyalty to act in the sole interest of beneficiaries.

DAT strategies then systematically amplify this already extreme risk by nearly two times. The consequence is staggering: An equity investor in MSTR acquires exposure equivalent to approximately 244 times the risk of a Treasury bill.

For a pension fund trustee, this is a fiduciary blind spot. Investing in a DAT firm is not a simple allocation to digital assets. It is an inadvertent, highly leveraged and poorly disclosed speculation that introduces massive volatility into a portfolio that must, above all, be prudent and sustainable.

This is not an argument against all alternative assets. In fact, as I detailed in a previous analysis, a small, deliberate allocation—for example, less than 1 percent of a portfolio—to digital assets can be a prudent part of a diversified institutional strategy. The critical distinction lies in the vehicle. If a pension fund seeks Bitcoin exposure, the prudent choice is a regulated, transparent, and direct vehicle such as a Bitcoin Spot ETF. These products provide the intended market exposure without the hidden leverage, volatility amplification, and uncompensated idiosyncratic risk inherent in DAT stocks.

The current regulatory framework is failing to capture this risk. DAT strategies allow traditional equity investors to gain leveraged crypto exposure while potentially bypassing the specific disclosures and regulatory scrutiny applied to crypto-native products. This is a form of regulatory arbitrage that undermines market transparency and investor protection principles central to the Securities Exchange Act of 1934.

Furthermore, DAT stocks establish a dangerous, bidirectional bridge between the volatile crypto market and the core equity markets. As pension funds and other major institutions increase their holdings, they create a direct channel for crypto-market contagion to spill over into the traditional financial system, threatening broader financial stability, which is a core concern for regulators such as the Financial Stability Oversight Council.

The DAT strategy violates core financial principles twice over. It is past time for regulators, policymakers, and fiduciaries to respond.

The SEC and financial regulators should mandate new, quantitative risk disclosure standards for DAT companies, using their existing regulatory authority concerning risk factors. Firms should be required to report quarterly their average daily value at risk for their cryptocurrency holdings—explicitly compared to traditional treasury benchmarks—Bitcoin beta coefficients to quantify the leveraged exposure for equity holders, and correlation analysis demonstrating performance during defined market stress periods.

Institutional investors and fiduciaries should conduct enhanced due diligence that looks beyond the “Bitcoin narrative,” scrutinizing the amplification metrics and the uncompensated idiosyncratic risks documented here. A fiduciary duty demands an understanding of the true, leveraged risk profile of these investments. For those seeking crypto exposure, Bitcoin Spot ETFs represent a far more transparent and prudent vehicle than DAT stocks.

Policymakers and legislators should recognize that the blurring line between digital assets and traditional finance creates novel systemic risks. The DAT phenomenon is a clear case study. As the U.S. Congress considers frameworks such as the Financial Innovation and Technology for the 21st Century Act, it must ensure that regulators are empowered to demand transparency when novel corporate strategies create hidden leverage and potential contagion.

The trend of DAT adoption risks undermining both corporate governance and the integrity of the markets in which our most critical institutions invest. Enhanced transparency and oversight are not just academic suggestions; they are necessary tools for prudence and stability. The hidden leverage must be brought into the light before this emerging model spreads further.