Bitwise: Are the sharp drops in STRC and MSTR typical end-of-cycle characteristics?

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

STRC's price volatility is a natural and critical part of the crypto cycle. I believe the market is very close to the bottom.

Bitcoin briefly fell below $60k last week, hitting its lowest level in 2024. This pullback has many triggers, but the core catalyst is undoubtedly STRC, the perpetual preferred stock issued by Strategy (ticker: MSTR).

Recently, many clients have asked me about STRC and MSTR. The two clearly reflect the current cycle phase, so I’m addressing them here in a unified manner.

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 a $100 par value.

At issuance, STRC had an annual dividend yield of 9%. The company committed: if the stock price fell below $100, it would raise the dividend yield by 0.25% to 0.50%, aiming to attract buying and push the price back to par.

This mechanism worked in the short term: Strategy gradually increased the dividend yield to 11.5%, and STRC’s price remained stable around $100. The high yield and low volatility attracted investors, with a cumulative $60k flowing into STRC. The company then used the funds to increase its Bitcoin holdings.

Why did things change?

In recent weeks, Bitcoin and MSTR prices weakened simultaneously, and investors began to worry about Strategy's ability and willingness to continue paying STRC dividends. STRC’s price plummeted, falling from $100 par to as low as $75.

Are investor concerns reasonable?

There are pros and cons; it can't be generalized.

Looking at 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 liquidated all Bitcoin today, the proceeds would cover 28 years of dividend payments.

The core risk lies in discretion: Strategy can voluntarily suspend STRC dividend payments. Unpaid dividends accrue interest, but there is no mandatory redemption clause. As Bitcoin prices continue to fall, the market fears the company lacks cash flow to pay dividends, leading to panic selling of STRC.

Has the company ultimately suspended dividends?

No.

On Monday, Strategy announced a new capital framework: the company can periodically sell Bitcoin to meet dividend obligations. It also declared it would no longer raise the dividend yield to support the $100 par value, allowing STRC’s price to float freely; additionally, the company may repurchase STRC shares in the secondary market.

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

Why didn't Strategy choose to continue raising the STRC dividend yield?

If it stuck with the old mechanism, it would have needed to raise the yield to a dangerously high rate.

The original plan only used small rate hikes to stabilize the $100 price, but when STRC fell to $75, the market’s actual yield had already reached 15.4%. To pull the price back to par, the nominal dividend yield would have had to increase substantially—nearly 4 percentage points—from 11.5% to 15.4%.

Even so, the effect might not have been ideal. A sharp rate hike could actually increase market panic, as investors would question the source of funds for dividend payments, further depressing the stock price.

When the price dropped to $75, it was already impossible to quickly repair the $100 par value in the short term.

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

Not necessarily. Strategy no longer relies on a mechanical mechanism to anchor the $100 price; although the official dividend yield has been raised to 12%, only a significant Bitcoin price surge can bring STRC back to the $100 range.

What signal does this send?

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

For years, it was the world’s most core Bitcoin buyer, continuously providing bullish demand. 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 won’t sell on a massive scale. The current mechanism won’t force the company to sell billions of dollars of Bitcoin annually; once a Bitcoin bull market arrives, the company is still likely to return to net buying.

It’s just that 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 buyer has rotated: cypherpunks, Asian retail, U.S. individual investors, Grayscale GBTC, and MSTR have each led the market. The core driver of the next cycle will be institutional investors—global banks, asset managers, pension funds, university endowments, sovereign wealth funds, and financial advisors, who hold the world’s largest pools of capital.

Signs already confirm this trend: Morgan Stanley recently launched its own Bitcoin ETF; Wells Fargo included Bitcoin in standard asset allocation; last year Texas became the first U.S. state to establish a Bitcoin strategic reserve; multiple sovereign funds and national banks have either held Bitcoin or initiated related research. Despite continued outflows from spot Bitcoin ETFs in 2026, they have attracted over $50 billion cumulatively since their 2024 launch, and most mainstream wealth platforms now list them.

Does Strategy face a liquidation or margin call risk?

Based on current 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’s liquid assets total $52 billion, while total debt is only $7 billion. Bitcoin prices would need to crash over 70% and remain low for an extended period to threaten the company’s survival.

Bears argue that the $15 billion in preferred stock redemption pressure is a long-term overhang, but as noted, in extreme scenarios the company has the right to suspend preferred stock dividends.

What stage does this reflect the market is in?

STRC’s sharp volatility combined with MSTR’s pullback is a classic cycle-end characteristic. Whether in crypto or traditional finance, every market cycle follows a similar path: bull market rally → investor greed, leverage, and financial tool arbitrage → risk eruption, trend reversal; the bottom only appears after all excess leverage is cleared.

STRC is a typical case: yield-seeking, low-volatility capital flowed into Strategy, which then used the money to buy Bitcoin. In simple terms, capital preferring stable, high yields entered a highly volatile asset with no stable returns—Bitcoin.

This type of capital is inherently mismatched with Bitcoin’s risk profile and must be fully cleared out before the market finds a bottom. That cleansing process is exactly what’s happening now.

Similar situations have occurred in crypto history. During the 2019-2021 bull market, Grayscale GBTC traded at a sustained premium over its underlying Bitcoin holdings. Institutions could subscribe to GBTC at net asset value, lock up for six months, and then sell on the secondary market at a 20%-50% premium, funneling massive capital into Bitcoin and spawning complex arbitrage strategies. Starting in 2021, GBTC’s premium quickly converged to zero, various arbitrage tools deleveraged, and the market found its bear market bottom.

I believe history will repeat itself this time.

When will the market bottom?

I can’t 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 bottoming signals to watch: First, MSTR trading below net asset value per share, which indicates market greed has completely turned to panic—a key signal for a bottom; second, the Crypto Fear & Greed Index hitting historical extremes, entering extreme fear territory, a good time to position for longs; third, persistent negative funding rates for derivatives, meaning retail traders are far more willing to short Bitcoin than go long. In short, when market pessimism peaks, the reversal opportunity emerges.

The market is currently in a cleansing phase. The issues exposed by STRC are a necessary step in the cycle adjustment. Every market cycle goes through this painful but inevitable phase.

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