Bitwise: Is the sharp decline of STRC and MSTR a typical end-of-cycle characteristic?

Author: Matt Hougan, Chief Investment Officer at Bitwise; Compiled by: Shaw, Jinse Finance

The violent price fluctuations of STRC are a natural and crucial part of the cryptocurrency cycle. I believe the market is very close to the bottom.

Last week, Bitcoin briefly fell below $60k, hitting its lowest level since 2024. There are many triggers for this pullback, but the core catalyst is the perpetual preferred stock product STRC issued by Strategy (ticker: MSTR).

Recently, a large number of clients have asked me about STRC and MSTR. These two clearly reflect the current cyclical phase of the market, so I will 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 or staying close to the $100 par value.

At launch, STRC had an annualized dividend yield of 9%. The company promised that if the stock price fell below $100, it would increase the dividend yield by 0.25% to 0.50%, thereby attracting buying pressure and pushing the price back to par.

This mechanism worked in the short term: Strategy gradually increased the dividend yield to 11.5%, and STRC's stock price remained stable around $100 for a long time. The high yield and low volatility attracted investors, with a cumulative $10.5 billion flowing into STRC. The company then used the proceeds to buy more Bitcoin.

What caused the change?

Over the past few weeks, Bitcoin and MSTR stock prices have weakened together, and investors have begun to worry about Strategy's ability and willingness to continue paying STRC dividends. STRC's stock price has plunged sharply, falling from $100 par to as low as $75.

Are investors' concerns reasonable?

There are pros and cons; it cannot be generalized.

From the overall balance sheet, the company's fundamentals are resilient: it holds $49.6 billion in Bitcoin, $2.6 billion in cash, total liabilities of $6.8 billion, and total preferred stock of $15.5 billion. If it were to liquidate all its Bitcoin today, the proceeds would cover dividend payments for the next 28 years.

The core risk lies in the option: Strategy can voluntarily suspend STRC dividend payments. Although unpaid dividends accrue interest, there are no mandatory payment terms at present. As Bitcoin prices continue to fall, the market worries that the company lacks cash flow to pay dividends, and investors panic-sell STRC.

Did the company ultimately suspend dividend payments?

No, it did not.

On Monday, Strategy announced a new capital framework: The company can periodically sell Bitcoin to meet dividend obligations. At the same time, it stated that it would no longer support the $100 par value through dividend yield increases, allowing STRC's price to float freely; additionally, the company may buy back STRC shares in the secondary market.

The announcement had a clear positive effect, with both MSTR and STRC stock prices rebounding sharply on Monday.

Why didn't Strategy choose to continue increasing STRC's dividend yield?

If the old mechanism were used, it would require raising the yield to an extremely risky ultra-high level.

The original plan only used small yield increases to stabilize the $100 stock price, but when STRC fell to $75, the market's actual yield had already reached 15.4%. To return to par, the nominal dividend yield would need to be raised significantly by nearly 4 percentage points, from 11.5% to 15.4%.

Even so, the effect might not be ideal. A large yield increase would actually exacerbate market panic, as investors would question the source of the company's dividend payments, further depressing the stock price.

Once the price falls to $75, it is difficult to repair the $100 par value in the short term.

Under the new framework, can STRC's stock price return to $100?

Not necessarily. Strategy is no longer using mechanical means to anchor the $100 stock price; although the official dividend yield has been raised to 12%, only a significant rise in Bitcoin price can bring STRC back to the $100 level.

What signal does this send?

Market opinions are divided, but I believe Strategy's role in the Bitcoin market has fundamentally changed.

For years, it was the world's most important Bitcoin buyer, continuously providing long demand to the market. But the era of one-way accumulation is likely over. Going forward, the company will flexibly buy and sell Bitcoin based on market conditions.

The key point is that it will not sell off massively. The existing mechanism does not force the company to sell billions of dollars in Bitcoin each year; once Bitcoin enters a bull market, the company is still likely to return to a net buyer status.

However, in the next cycle, its influence on the Bitcoin market will be far less than in the previous one.

Who will replace Strategy as the largest Bitcoin buyer?

I believe the answer is institutional capital.

Looking at Bitcoin's history, the dominant market buyers have rotated: cypherpunks, Asian retail investors, US individual investors, Grayscale GBTC, and MSTR have led the market in turn. The core driver of the next bull run will be institutional investors — global banks, asset managers, pension funds, university endowments, sovereign wealth funds, and financial advisors, who control the largest pools of capital in the world.

Multiple signs confirm this trend: Morgan Stanley recently launched its own Bitcoin ETF; Wells Fargo has included Bitcoin in standard asset allocation portfolios; last year, Texas became the first US state to establish a Bitcoin strategic reserve; multiple sovereign funds and national banks already hold Bitcoin or have initiated research projects. Although Bitcoin spot ETFs saw continuous outflows in 2026, they have attracted over $50 billion in cumulative inflows since their launch in 2024, and the product is now available on the vast majority of mainstream wealth management platforms.

Does Strategy have liquidation risk?

Based on available data, there is no such risk. The liquidation conspiracy theories circulating in the market are completely inconsistent with financial calculations. As mentioned earlier, the company has $52 billion in total liquid assets and only $7 billion in total debt. Bitcoin prices would need to crash by more than 70% and remain low for an extended period to threaten the company's survival.

Bears argue that the $15 billion preferred stock redemption obligation is a long-term overhang, but as mentioned, in extreme cases, the company has the right to suspend preferred dividend payments.

What stage does this reflect the market is in?

The violent fluctuations in STRC combined with the pullback in MSTR stock price are typical characteristics of the late-cycle phase. Whether in crypto or traditional finance, every market cycle follows a similar path: a bull market rise → investor greed and leverage, supported by various financial tools → risk eruption, market reversal; only after all excess leverage is cleared does the bottom emerge.

STRC is a textbook case: capital seeking high yields and low volatility flows into Strategy, and the company uses that money to buy Bitcoin. In simple terms, capital that prefers stable high yields rushes into a highly volatile Bitcoin asset with no stable returns.

This type of capital is inherently mismatched with Bitcoin's risk profile and must be fully cleared before the market can find its bottom. Right now, that clearing process is underway.

Similar situations have occurred in crypto history. During the 2019-2021 bull market, Grayscale GBTC traded at a significant premium over its underlying Bitcoin for a long time. Institutions could subscribe to GBTC at NAV, lock up for six months, and sell at a 20% to 50% premium in the secondary market, allowing massive capital to flow into Bitcoin and spawning complex financial arbitrage structures. Starting in 2021, the GBTC premium quickly converged to zero, various arbitrage tools deleveraged, and the market subsequently found the bear market bottom.

I believe history will repeat itself this time.

When will the market bottom arrive?

I cannot give an exact time; no one can predict it precisely. Market bottoms can only be confirmed in hindsight.

But in the near term, there are several key bottom signals to watch: First, MSTR trading below its net asset value per share, which indicates market greed has fully turned to panic — a key signal of bottom formation; Second, the Crypto Fear & Greed Index hitting historical extremes, entering the extreme fear zone, which is suitable for positioning long; Third, derivatives funding rates being persistently negative, meaning retail investors are far more willing to short Bitcoin than go long. In short, when market pessimism is at its peak, the reversal opportunity arises.

The market is currently in the clearing phase, and the issues exposed by STRC are a necessary part of the cyclical adjustment. All market cycles go through this painful period; it is unavoidable.

The market is still digesting various risks, but I firmly believe the bottom is imminent, and a new bull market will begin this autumn.