Bitwise Chief Investment Officer: The big drop of STRC is a bottom signal, the bull market will start in the fall.

Written by: Matt Hougan, Chief Investment Officer of Bitwise

Translated by: Chopper, Foresight News

Last week, the price of Bitcoin fell below $60,000, setting a new low for 2024. There are many reasons for this decline, but the core trigger is the perpetual preferred shares STRC issued by Strategy.

I have received many questions from clients about STRC and MSTR. Given that they reflect the current stage of the cycle we are in, I would like to address them here.

What is STRC?

STRC is a preferred stock product launched by Strategy last year, designed to provide investors with high returns while maintaining a stable price close to its par value of $100.

At the beginning of its issuance, STRC had an annualized dividend yield of 9%. To maintain the target price of $100, the company stated that if the market price fell below $100, it would raise the dividend by 0.25%–0.5%. The higher yield would attract buyers, pushing the price back to the par value of $100.

This mechanism initially worked. Strategy gradually raised the dividend to 11.5%, and the STRC stock price lingered around $100 for a long time. The high yield and seemingly zero-risk product was highly sought after, and investors cumulatively poured $10.5 billion into STRC, with the company using all the funds to increase its Bitcoin holdings.

In the past few weeks, the prices of Bitcoin and MSTR weakened in sync, and the market began to worry about whether Strategy had the ability and willingness to pay STRC dividends, leading to a sharp drop in the STRC price, which fell to a low of $75.

Is the investors' panic reasonable?

Yes and no.

From a comprehensive balance sheet perspective, the company’s fundamentals are very solid: it holds $49.6 billion worth of Bitcoin and $2.6 billion in cash, with total liabilities of $6.8 billion and preferred shares totaling $15.5 billion. If it were to sell all of its Bitcoin right now, the funds obtained would be enough to cover all dividend payments for the next 28 years.

However, the core disagreement is whether the company will choose to suspend dividend payments? Strategy has the right to unilaterally suspend STRC dividends; dividends are only accumulated liabilities, and there is currently no obligation to pay them. As Bitcoin continues to decline, the market is worried that the company’s cash flow is under pressure and may stop dividends at any time, which has fueled the panic.

Did the company ultimately suspend dividends?

No, it did not.

This Monday, Strategy announced a new operating framework: the company will selectively sell some Bitcoin specifically to pay dividends. At the same time, it will no longer maintain the $100 par value by raising dividends and will allow STRC to float freely in pricing; additionally, the company may buy back STRC in the secondary market.

After the announcement, the prices of MSTR and STRC rebounded sharply in sync.

Why doesn't Strategy directly raise dividends to support the price?

To bring back the $100 par value, the required increase in dividends has become too high to bear.

The initial strategy of the company was to make slight adjustments to the interest rate to stabilize the stock price, but when STRC fell to $75, the market's actual yield had already reached 15.4%. To restore it to par value through interest rate increases, the nominal dividend rate would need to be raised significantly from 11.5% by almost 4 percentage points to 15.4%.

Even if they do raise rates, the effects may not be ideal. A large increase in dividends would exacerbate market concerns: how can the company continue to pay high dividends, and this may instead trigger a new round of sell-offs.

A price of $75 is too far from the $100 par value, and it cannot be recovered in the short term merely by increasing rates.

Under the new framework, can STRC return to $100?

Not necessarily. The company no longer relies on mechanistic means to anchor the stock price at $100; while the official dividend has been raised to 12%, STRC can only return to $100 if the price of Bitcoin sees a significant rise.

What do these changes mean?

There are significant differences in market opinions, but in my view, Strategy's role in the Bitcoin market has completely changed.

For many years, it was the largest buyer of Bitcoin globally, continuously providing one-way buying pressure to the market. This phase has likely ended. From now on, the company will trade Bitcoin dynamically according to market conditions, no longer just buying and not selling.

It is important to emphasize: I do not believe that Strategy will sell off on a large scale. There are no mandatory clauses forcing the company to liquidate billions of dollars worth of Bitcoin each year; once Bitcoin enters a bull market, Strategy will likely turn into a net buyer again.

However, in the next cycle, Strategy's influence on the Bitcoin market will be far less than in the previous cycle.

Who will take over as the largest incremental buyer of Bitcoin after Strategy?

Institutional funds.

Throughout the history of Bitcoin, the market's main buyers have continued to evolve: cypherpunks, Asian investors, American retail investors, GBTC Grayscale Trust, and MSTR have sequentially taken over the dominance. I judge that the core incremental buying in the next round will be various institutional funds—global banks, asset management, pension funds, endowment funds, sovereign wealth funds, and independent financial advisors, which hold the largest pools of capital in the world.

Many signals have already confirmed this trend. Morgan Stanley recently launched its own Bitcoin ETF, and Wells Fargo has included Bitcoin in its standard asset allocation model; Texas became the first state in the U.S. to establish a strategic Bitcoin reserve last year; several sovereign funds and national banks have allocated Bitcoin or started related research projects. Although Bitcoin ETFs experienced fund outflows in 2026, since their launch in 2024, they have seen a cumulative net inflow of over $50 billion, and major financial platforms have launched related products.

Is there a risk of liquidation or bankruptcy for Strategy?

There is absolutely no such risk based on existing data; all kinds of liquidation and bankruptcy arguments do not conform to financial logic. As mentioned earlier, the company has liquid assets totaling $52 billion, with total debts of only $7 billion. Bitcoin would need to plummet over 70% and stay at low levels for a long time before the company faces a survival crisis.

Market skeptics believe that the pressure from over $15 billion in preferred stock payments is a long-term negative, but in extreme cases, the company can choose to suspend preferred stock dividends, making the risk manageable.

What stage does this reflect in the current market?

The severe fluctuations in STRC along with the MSTR price correction are typical characteristics of the tail end of a cycle. All financial markets, including the cryptocurrency market, have a highly unified logic of bull and bear cycles: the market first enters a bull trend; then, investors become greedy and leverage up, giving rise to a multitude of financial derivatives; market risk points appear, and the trend reverses; the market clears and squeezes out all excess leverage before a true bottom emerges.

STRC is a typical product of financial leverage in this cycle: funds seeking stable high returns flood into STRC, which the company then uses to buy Bitcoin. Simply put, a batch of funds pursuing low volatility and stable returns ultimately flowed into the highly volatile Bitcoin asset.

Such funds are inherently misaligned with the characteristics of Bitcoin assets, and must complete their exit for the market to find a bottom, and this process is currently underway.

The cryptocurrency market has historically seen a completely identical storyline. During the bull market from 2019 to 2021, GBTC Trust consistently traded at a significant premium over the underlying Bitcoin net asset value. Institutions could subscribe to GBTC at par, lock it up for six months, and then sell it on the secondary market at a premium of 20%–50%, flooding massive amounts of capital into Bitcoin and giving rise to various complex financial instruments. Starting in 2021, the trust's premium quickly disappeared, and various leveraged instruments retreated, leading the market to bottom out.

This round of market activity is likely to replicate the same path.

When will the market bottom arrive?

I cannot provide a specific timeline; no one can accurately predict the bottom, only a retrospective analysis can confirm it clearly.

However, several key indicators can be closely monitored before the bottom: First, when the MSTR stock price trades at a discount below net asset value (NAV), it represents a clear signal of market sentiment shifting from greed to extreme panic, indicating that the bottom is near; Second, when the Crypto Fear and Greed Index falls to historical extremes, entering the extreme panic range, it provides positioning value; Third, when the financing rate for Bitcoin contracts remains negative, the willingness of retail investors to short far exceeds the desire to go long, indicating thorough market pessimism.

In summary: when the market falls to extreme pessimism, the opportunity for reversal will arise.

The market is currently in a clearing process, and the chain reaction caused by STRC is a necessary part of the cycle. Every cryptocurrency cycle experiences this painful but necessary deleveraging phase.

As the market continues to cleanse and adjust, I firmly believe that the bottom is just around the corner, and a new round of bull market will begin this autumn.