Bitwise CIO: STRC fluctuations are signs of the end of the cycle, and the market bottom may be near

Recently, Bitwise Chief Investment Officer Matt Hougan shared his views on the price fluctuations of STRC, a preferred stock instrument under Strategy (formerly MicroStrategy), and their impact on the market cycle.

He pointed out that STRC's stock price fell from $100 to $75 at one point, mainly due to investor concerns about Strategy's ability and willingness to pay dividends.

However, Strategy has now announced a new framework that allows it to fulfill its dividend obligations through periodic sales of Bitcoin and has stopped automatically raising interest rates to defend the $100 stock price.

Hougan believes that the fluctuations in STRC are a typical "end-of-cycle" phenomenon. Because at the top of the market cycle, investors often chase high returns through contracts, and when these leverages are cleared, the market truly bottoms out.

STRC is essentially "capital seeking high yields and low volatility being used to buy Bitcoin, which offers neither," and this capital needs to be flushed out of the market.

He predicts that the era of Strategy being the most important buyer of Bitcoin may be coming to an end, and in the future, institutional investors (banks, asset managers, pension funds, sovereign wealth funds, etc.) will take over as the primary source of demand, noting that Morgan Stanley, Wells Fargo, and others have already begun to position themselves.

Hougan said that although it is impossible to precisely predict the market bottom, one can watch for signals such as MSTR trading at a discount, the Fear and Greed Index falling into extreme fear territory, and the interest rate on leveraged funds turning negative.

Regarding concerns about liquidation risk, he indicated that such a scenario is unlikely. Because Strategy currently has $52 billion in liquid assets and only $7 billion in debt, Bitcoin would need to crash by more than 70% and remain there for several years to pose a liquidation threat.

Overall, despite the fluctuations in STRC and the pullback in MSTR's stock price, Hougan believes this is a typical end-of-cycle dynamic, which may indicate that the market bottom is near, and he expects a new bull market to begin in the fall.

#STRC #MSTR