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Bitwise Chief Investment Officer Matt Hougan said Bitcoin may be approaching a market bottom as turmoil surrounding Strategy’s STRC preferred stock forces excess leverage out of the crypto market.
In his latest weekly memo, Hougan described the recent volatility in STRC and the decline in Strategy shares as classic end of cycle dynamics. He said the correction reflects the unwinding of financial engineering that brought yield seeking capital into Bitcoin during the bull market.
“The volatility in STRC is a natural and important part of the crypto cycle,” Hougan wrote. “I think we’re nearing the bottom.”
STRC is a perpetual preferred stock launched by Strategy to provide investors with a high yield while targeting a trading price near its $100 par value. Strategy used proceeds from the instrument to finance additional Bitcoin purchases.
Demand initially remained strong as Strategy gradually increased STRC’s dividend rate to 11.5%. The company raised about $10.5 billion through the product, according to Hougan.
However, STRC recently fell as low as roughly $75 as declining Bitcoin and MSTR prices raised concerns over Strategy’s ability and willingness to continue funding preferred dividends.
Strategy responded this week by introducing a new capital management framework that allows it to sell Bitcoin to strengthen its dollar reserve, meet dividend and debt obligations, and fund share repurchases.
The company also raised STRC’s annual dividend rate to 12% and authorized as much as $2 billion in common and preferred stock buybacks.
The framework permits Strategy to generate up to $1.25 billion through Bitcoin sales while maintaining a cash reserve intended to cover at least 12 months of dividend and interest payments.
Hougan said the changes suggest Strategy’s role in the Bitcoin market has shifted. After spending years as one of the asset’s most consistent buyers, the company may now buy or sell Bitcoin depending on market conditions.
“For years, Strategy has been the most dominant Bitcoin buyer in the world and a one way source of Bitcoin demand,” Hougan wrote. “Those days are likely over.”
He does not expect Strategy to become a major seller, noting that the company has enough assets to cover its debt and preferred obligations. He also dismissed fears that Strategy faces imminent liquidation, arguing Bitcoin would need to suffer a much deeper and sustained decline before the company faced serious balance sheet pressure.
Instead, Hougan expects institutional investors to become the leading source of Bitcoin demand during the next market cycle, including banks, asset managers, pension funds, endowments, sovereign wealth funds, and financial advisers.
Hougan compared the STRC unwind with the collapse of the Grayscale Bitcoin Trust premium following the 2019 to 2021 bull market. In both cases, financial structures attracted capital that depended on unusually favorable market conditions and later had to be unwound before the market could establish a durable bottom.
He said investors should watch for signs including MSTR trading below the value of its Bitcoin holdings, extreme readings in the Crypto Fear and Greed Index, and persistently negative funding rates.
Market bottoms remain impossible to identify in real time, Hougan said, but the unwinding of STRC related leverage suggests the market is progressing through the final stages of the cycle.
“I’m convinced the bottom is closer than ever,” he wrote, adding that he expects a new Bitcoin bull market to begin in the fall.
Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.
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