Bitwise: STRC's wobble is the cycle coughing, not Strategy's last breath 🫁

Asset manager Bitwise said the sharp decline in Strategy's (MSTR) perpetual preferred stock, STRC, reflects late-cycle deleveraging rather than signs of distress at the company, with Chief Investment Officer Matt Hougan arguing the crypto market is nearing a bottom. Bitcoin's recent pullback below $60,000 coincided with STRC breaking from its intended $100 par value, as investors questioned Strategy's willingness to maintain preferred dividend payments. Bitcoin was trading around $61,400 at publication time, with STRC at $88.

"The volatility in STRC is a natural and important part of the crypto cycle. I think we're nearing the bottom," Hougan said in a Wednesday blog post. According to Hougan, Strategy's decision to stop defending STRC's $100 price through automatic rate hikes, and instead allow the security to trade freely while retaining the option to sell bitcoin or repurchase STRC, was a pragmatic response to deteriorating market conditions.

Earlier this week, Strategy unveiled a capital framework allowing selective bitcoin sales to fund preferred dividends, while authorizing preferred share repurchases and stock buybacks. The company also set a minimum cash reserve covering 12 months of preferred dividend and interest payments. Its $2.55 billion cash balance currently covers about 17 months. Bitwise noted that Strategy remains well-capitalized, with roughly $52 billion in liquid assets against about $7 billion of debt.

Hougan said the episode marks a shift in Strategy's role within bitcoin markets, from a one-way buyer to a more flexible participant whose bitcoin purchases or sales will depend on market conditions. Bitwise expects institutional investors, including asset managers, banks, pensions, endowments and sovereign funds, to replace Strategy as bitcoin's primary source of demand in the next cycle, with STRC's volatility seen as part of the leverage unwind that typically marks the late stages of every crypto cycle.