Why a crypto crash would hit equities

Crypto’s latest volatility shows how quickly trouble in digital assets can spill into equities and wider risk markets.

Crypto risk remains despite the bounce in Bitcoin this week. Whilst most of you have never touched crypto and think it’s irrelevant, it’s not. The market cannot afford a crypto collapse, which has already happened in second-line digital assets (down 70%) and is possible in Bitcoin, which as of Tuesday (02/12) was 32.4% off the top (before the bounce). Things are extremely volatile in the crypto space at the moment, ever since the Trump tweet on 10 October that caused a crypto crash in many coins. Don’t underestimate the damage that has been done. Crypto is at risk of a collapse in confidence.

Bitcoin is a confidence asset with no physical integrity. At least gold is physical and has some physical attractions. Bitcoin has none, which means it is entirely possible that the crypto space loses complete confidence (nothing to stop that) and collapses (it already is doing so) with no floor. Even at this price, certain companies with Bitcoin on their balance sheets and loans written against the value of their Bitcoin holdings are under financial pressure.

Why extremes help explain market risk

Imagining a concept at its extremes is a great way to understand its incremental impact. For instance, if you want to know whether height matters in running, imagine the extremes – a giant one hundred metres tall covering 100m in a stride, or a runner barely a millimetre high needing an age to cover one metre. The gap tells you the principle. You can apply the ‘extreme technique’ to a lot of things, one of them being markets.

The impact of a deep Bitcoin crash

So, if we want to understand the consequences of a sharp drop in the Bitcoin price, take the argument to its endpoint. What if Bitcoin went to zero? Do that, and the companies being held aloft by Bitcoin, relying on Bitcoin sentiment, on the perception of Bitcoin’s integrity, companies that depend on crypto credibility to survive, quickly disappear, and in the case of “Bitcoin zero”, the shock would not be confined to crypto stocks; it would punch a hole in the equity market and every other risk-on asset class.

Strategy Inc. (formerly MicroStrategy) is a US$52bn market cap company that owns 3% of all Bitcoin in existence and will have to sell or borrow to pay dividends, which could trigger a crypto cascade. If Bitcoin went to zero, Strategy Inc. would disappear. It’s already disappearing. It is down 66%.

Companies most exposed to Bitcoin losses

And there are other Bitcoin-related stocks.

Major Bitcoin treasury holders and DAT (digital asset treasury) companies:

• Strategy Inc. (MSTR) – The flagship Bitcoin-hoarder; equity is essentially a leveraged BTC position.
• Marathon Digital (MARA) – Miner plus substantial BTC holdings.
• Twenty One Capital / XXI (XXI) – A dedicated Bitcoin accumulation vehicle.
• Metaplanet Inc. (3350.T) – Japanese small-cap turned Bitcoin treasury play.
• Bitcoin Standard Treasury Co (BSTC) – Another purpose-built BTC reserve entity.
• Galaxy Digital Holdings (GLXY) – Merchant bank with heavy BTC exposure.
• Tesla (TSLA) – Holds a meaningful BTC position; not life-threatening but still a direct write-off.
• Block (SQ) – BTC on balance sheet plus deep strategic exposure.
• Coinbase (COIN) – Holds BTC and earns from BTC trading volumes.
• Hut 8 (HUT) – Miner that stores a chunk of production as BTC.
• CleanSpark (CLSK) – Miner with thousands of BTC on balance sheet.
• Cango (CANG) – Added Bitcoin to its treasury.
• GD Culture Group (GDC) – Microcap now functioning as a BTC proxy.
• Trump Media (DJT) – Has explored BTC/crypto treasury ideas.
• GameStop (GME) – Holds several thousand BTC purchased with equity proceeds.
• Semler Scientific (SMLR) – Adopted Bitcoin as primary reserve asset.
• Next Technology Holding (NXTT) – Former WeTrade; pivoted into BTC storage.
• Other DAT microcaps: Smarter Web Company, ALT5 Sigma (ALTS.O), BitMine (BMNR.A), GameSquare (GAME.O).

The miners:

• Marathon Digital (MARA)
• Riot Platforms (RIOT)
• Iren Ltd (IREN)
• Core Scientific (CORZ)
• Bitfarms (BITF)

The exchanges – Even if exchanges segregate client assets, their revenue streams are tied to trading volumes, and Bitcoin still dominates crypto activity.

• Coinbase (COIN) – Large BTC holder + trading revenue tied to BTC volumes.
• Robinhood (HOOD) – Crypto revenues and derivatives take a massive hit.
• Naver Corp (035420.KS) – Through Dunamu/Upbit, which relies heavily on BTC trading.

The ETFs

Spot Bitcoin ETFs have become very popular. Imagine Australian investors seeing some ETFs destroyed. VBTC, QBTC, IBIT and CRYP would all be in the firing line. Let alone US ETFs. If Bitcoin goes to zero, those prices vanish, and so do the fee streams. For ETF issuers, it would eliminate an entire product line and dent growth narratives.

How a collapse spreads through financial markets

A complete collapse in Bitcoin’s value would be unlike a normal drawdown. It’s not a 20% correction or a cyclic bear market in an asset with integral value. A zero extreme is not impossible and would turn every Bitcoin on every balance sheet into a worthless asset. That destroys the business models of miners, hollows out exchanges and wipes out an entire ecosystem of companies that have hitched themselves to the Bitcoin story, to crypto, to crypto mining and to crypto exchange.

The fallout would run in three waves:

• Direct damage: companies holding BTC as a treasury asset lose those assets.
• Business-model failure: miners, exchanges and platforms would lose their operating revenue.
• Financial contagion: debt covenants trigger, capital markets shut and equity in crypto-related firms re-rate.

If Bitcoin went to zero it would create another global financial crisis. Companies would disappear (miners, exchanges, treasuries), and credit markets would freeze. In the equity market, risk-on and tech sentiment would be destroyed, and data centre assets would re-value sharply lower as all the mining capacity became available – a lot of redundant chips and frames become available (what price Nvidia now?).

There are a lot of investors in crypto assets, many of them highly leveraged (think margin calls, liquidations, stop losses). And there are large ETFs based on crypto assets, and platforms that would fold, taking investors with them. Some lenders would become credit risks themselves.

Why equity markets can’t ignore crypto volatility

Now imagine some level of that event as the Bitcoin price falls a third and other crypto assets fall 70%. For us and the equity markets and ETFs, it would/should/could puncture risk-on sentiment. It matters. Even if you’ve never touched the crypto markets. The contagion, at the extremes, would get you.

Bottom line – If you think a crypto crash doesn’t matter to you, think again. It would cripple the equity markets at the extremes. And after a 30% drop in the most credible coin and a 70% average drop in the secondary coins, it’s already happening to some degree. So ignore it at your peril.