Author: Matt Hougan, Chief Investment Officer at Bitwise
Compiled by: Chopper, Foresight News
Last week, the price of Bitcoin fell below $60,000, hitting a new low for 2024. There were many reasons for this decline, but the core trigger was 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 yields while maintaining a stable price close to its $100 par value.
Initially, STRC offered an annual dividend yield of 9%. To maintain the $100 target price, the company stated that if the market price fell below $100, it would increase the dividend by 0.25%–0.5%. Higher yields would attract buyers, pushing the price back to the $100 par value.
This mechanism worked well initially. Strategy gradually raised the dividend to 11.5%, and the STRC share price hovered around $100 for a long time. This high-yield, seemingly risk-free product gained popularity, with investors pouring a total of $10.5 billion into STRC. The company used all the funds raised to buy more Bitcoin.
Over the past few weeks, as Bitcoin and MSTR's share price weakened simultaneously, concerns arose about Strategy's ability and willingness to pay STRC dividends. Consequently, the price of STRC plummeted, dropping as low as $75.
Is Investor Panic Justified?
Yes and no.
Looking at the overall balance sheet, the company's fundamentals are solid: it holds $49.6 billion worth of Bitcoin, $2.6 billion in cash, with total liabilities of $6.8 billion and preferred shares totaling $15.5 billion. If all Bitcoin were sold today, the proceeds would be sufficient to cover dividend payments for the next 28 years.
However, the core disagreement lies in whether the company will choose to suspend dividends. Strategy has the right to pause STRC dividend payments; dividends are only accrued and there is no mandatory requirement for immediate payment. With Bitcoin continuing to fall, market concerns about the company's cash flow pressure and the possibility of suspending dividends at any time fueled panic.
Did the Company Ultimately Suspend Dividends?
No.
This Monday, Strategy announced a new operational framework: the company will opportunistically sell some Bitcoin specifically to pay dividends. At the same time, the official policy of raising dividends to maintain the $100 par price is abandoned, allowing STRC to float freely. Additionally, the company may repurchase STRC in the secondary market.
Following the announcement, both MSTR and STRC share prices rebounded significantly.
Why Didn't Strategy Simply Raise Dividends to Support the Price?
The required dividend increase to pull the price back to $100 would have been too high to sustain.
The company's initial plan was to make small adjustments to stabilize the share price, but when STRC fell to $75, the market's implied yield had already reached 15.4%. To restore the price to par through rate hikes, the nominal dividend rate would need to be increased significantly by nearly 4 percentage points from 11.5% to 15.4%.
Even with such an increase, the effect might not be ideal. A substantial hike in dividends could heighten market doubts: how can the company sustain such high payments? This could potentially trigger a new round of selling.
The $75 price was too far from the $100 par value to be corrected short-term through dividend hikes.
Under the New Framework, Can STRC Return to $100?
Not necessarily. The company is no longer relying on mechanistic measures to peg the share price at $100; although the official dividend has been raised to 12%, STRC can only return to $100 if the Bitcoin price rises substantially.
What Do These Changes Mean?
Market opinions vary greatly, but in my view, Strategy's role in the Bitcoin market has fundamentally changed.
For many years, it was the world's largest buyer of Bitcoin, consistently providing one-way buying pressure. That phase is most likely over. Moving forward, the company will buy and sell Bitcoin dynamically based on market conditions, rather than only buying.
It is important to note: I do not believe Strategy will engage in large-scale selling. There is no mandatory clause forcing the company to liquidate tens of billions of dollars in Bitcoin annually; once Bitcoin enters a bull market, Strategy is likely to become a net buyer again.
However, in the next cycle, Strategy's influence on Bitcoin's price action will be far less than in the previous one.
Who Will Replace Strategy as the Largest Incremental Buyer of Bitcoin?
Institutional capital.
Throughout Bitcoin's development, the dominant buyers have continuously evolved: cypherpunks, Asian retail investors, US retail investors, the GBTC Grayscale Trust, and MSTR each took the lead. I predict the core incremental buyers in the next market phase will be various institutional funds—global banks, asset managers, pension funds, endowments, sovereign wealth funds, and independent financial advisors—who control the world's largest pools of capital.
Many signals already confirm this trend. Morgan Stanley recently launched its own Bitcoin ETF; Wells Fargo included Bitcoin in its standard asset allocation model; last year, Texas became the first US state to establish a strategic Bitcoin reserve; several sovereign wealth funds and national banks have already allocated to Bitcoin or initiated related research projects. While Bitcoin ETFs saw outflows in 2026, they have recorded cumulative net inflows exceeding $50 billion since their launch in 2024, and all major investment platforms now offer related products.
Is There a Risk of Strategy Being Liquidated or Forced to Sell?
Based on current data, it is entirely non-existent; all theories about liquidation and collapse do not align with financial logic. As mentioned earlier, the company's total liquid assets amount to $52 billion, with total debt only $7 billion. Bitcoin would need to plummet by over 70% and remain at such low levels for the company to face a survival crisis.
Skeptics point to the long-term pressure of servicing over $15 billion in preferred shares, but in extreme scenarios, the company can choose to suspend preferred dividend payments, keeping the risk manageable.
What Stage of the Market Cycle Does This Reflect?
The violent volatility of STRC coupled with the correction in MSTR's share price is a classic late-cycle characteristic. All financial markets, including crypto, follow a highly consistent boom-and-bust cycle logic: a bull market emerges first; then investor greed leads to increased leverage, spawning numerous financial derivative products; a risk point triggers a market reversal; only after the market clears out and squeezes out all excess leverage does the true bottom form.
STRC is a typical financial leverage product of this cycle: funds seeking stable high yields flowed into STRC, and the company used that money to buy Bitcoin. Simply put, a batch of capital seeking low-volatility, stable returns ultimately flowed into the highly volatile Bitcoin asset.
This type of capital is inherently mismatched with Bitcoin's asset properties and must exit the market for a bottom to be established. We are currently going through this process.
The crypto market has seen identical scenarios in history. During the 2019–2021 bull market, the GBTC Trust traded at a significant premium to its underlying Bitcoin Net Asset Value (NAV) for an extended period. Institutions could subscribe to GBTC at NAV, lock it up for six months, and then sell it on the secondary market at a 20%–50% premium. Massive capital flowed into Bitcoin through this, spawning various complex financial instruments. Starting in 2021, the GBTC premium quickly disappeared, various leverage tools withdrew, and the market subsequently bottomed.
This cycle is highly likely to follow the same path.
When Will the Market Bottom Arrive?
I cannot give an exact date; no one can accurately predict the bottom, which can only be clearly confirmed in hindsight.
However, we can focus on several leading indicators of a bottom: First, MSTR's share price falling below its Net Asset Value (NAV) and trading at a discount signifies market sentiment shifting completely from greed to extreme panic, a clear signal of an approaching bottom. Second, the Crypto Fear & Greed Index falling to historical extremes, entering the extreme fear zone, indicates value for positioning. Third, Bitcoin futures funding rates remaining persistently negative, showing retail shorting sentiment far exceeding longing, reflects total market pessimism.
In simple terms: the reversal opportunity appears only when the market falls to a point of extreme pessimism.
The market is currently in the process of clearing out. The chain reaction triggered by STRC is a necessary part of the cycle. Every crypto cycle goes through this painful but essential deleveraging phase.
As the market continues to adjust and clear out, I firmly believe the bottom is near, and a new bull market will begin this autumn.
