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

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

STRC’s violent price swings are a natural and crucial part of the crypto cycle. I believe the market is very close to the bottom.

Last week, Bitcoin briefly fell below $60,000, hitting the lowest level since 2024. There are many triggers behind this pullback, but the most core catalyst is STRC—a perpetual preferred stock product issued by Strategy (stock code: MSTR).

Recently, many clients have asked me about issues related to STRC and MSTR. Since the two can clearly reflect the current stage of the market cycle, I will address them together here.

What is STRC?

STRC is a preferred stock product that Strategy launched last year. The original design intent was to provide investors with high returns while keeping the stock price at, or close to, the $100 par value.

In the early stage of the product launch, STRC’s annual dividend yield was 9%. The company committed that if the stock price fell below $100, it would increase the dividend yield by 0.25% to 0.50%, thereby attracting buy-side demand and pushing the price back toward the $100 par value.

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 the long run. With its high-yield, low-volatility characteristics, investors rushed in—bringing a cumulative $10.5 billion into STRC. The company then used the raised funds to increase its Bitcoin holdings.

What caused the change?

Over the past few weeks, as Bitcoin and MSTR’s stock prices moved down in tandem, investors began to worry whether Strategy is able and willing to continue paying STRC dividends. STRC’s stock price plunged sharply, dropping from the $100 par value level all the way to $75.

Are investors’ concerns justified?

There are both pros and cons, and you can’t generalize.

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

The core risk point lies in the call option: Strategy can independently pause the payment of STRC dividends. While unpaid dividends will accrue interest, there are no contractual terms that require mandatory redemption at this time. With Bitcoin prices continuing to fall, the market worries that the company lacks cash flow to pay dividends, and investors panic-sell STRC.

Did the company ultimately stop paying dividends?

No.

On Monday this week, Strategy released a brand-new capital framework: the company may periodically sell Bitcoin to fulfill its dividend obligations. At the same time, it also announced it would no longer support the $100 par value by increasing the dividend yield—meaning the STRC price will be allowed to trade freely; additionally, the company may also repurchase STRC shares in the secondary market.

The announcement had a clear positive impact, with both MSTR and STRC stock prices surging sharply higher on Monday.

Why didn’t Strategy choose to keep increasing the STRC dividend yield?

If it followed the old mechanism, the yield would need to be raised to an ultra-high rate that carries significant risk.

The original plan only relied on small rate hikes to stabilize the $100 stock price. But when STRC fell to $75, the market’s effective yield had already reached 15.4%. To pull it back to par value, the nominal dividend yield would have to be increased substantially—by nearly 4 percentage points—from 11.5% to 15.4%.

Even so, the outcome may not be ideal. Raising the dividend yield sharply would instead intensify market panic. Investors would question the source of the company’s dividend-paying funds, further pressuring the stock price downward.

Once the price drops to $75, it no longer has the short-term capacity to repair the $100 par value.

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

Not necessarily. Strategy no longer relies on a mechanism to anchor the $100 stock price; although the official dividend yield was raised to 12%, only a strong upturn in Bitcoin price would give STRC a chance to return to the $100 range.

What signal does this release?

There are major differences in market viewpoints, but I believe Strategy’s role in the Bitcoin market has fundamentally changed.

For many years, it has been the world’s most core Bitcoin buyer, continuously providing long-side demand to the market. But this era of one-direction accumulation is likely coming to an end. Going forward, the company will flexibly buy and sell Bitcoin depending on market conditions.

The key point is that it will not massively sell. The existing mechanism does not force the company to sell tens of billions of dollars of Bitcoin every year. Once a Bitcoin bull market arrives, it will likely return to a net buying position.

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 to become the largest Bitcoin buyer?

I think the answer is institutional capital of all kinds.

Looking across the history of Bitcoin, the market’s main buyer has kept rotating: cypherpunks, Asian retail investors, U.S. individual investors, Grayscale GBTC, and MSTR have successively dominated the market. The core driving force of the next market cycle will be institutional investors—global banks, asset management firms, pension funds, university endowment funds, sovereign wealth funds, and wealth management advisors—who hold the world’s largest pools of capital.

All kinds of signs have already confirmed this trend: Morgan Stanley has recently launched its own Bitcoin ETF, Wells Fargo has included Bitcoin in its standard asset allocation portfolio; last year Texas became the first U.S. state to establish a Bitcoin strategic reserve; multiple sovereign funds and national banks already hold Bitcoin or have initiated related research projects. Although Bitcoin spot ETFs continued to see net outflows of capital in 2026, since they launched in 2024 they have cumulatively attracted over $50 billion, and today the vast majority of mainstream wealth management platforms have already rolled out this product.

Does Strategy face liquidation and forced liquidation / blow-up risk?

Based on available data, there is no such risk. The liquidation conspiracy theories circulating in the market do not match financial modeling at all. As mentioned earlier, the company’s total liquid assets are $52 billion, while its total debt is only $7 billion. Only a Bitcoin price drop of more than 70%, and a prolonged period of low prices, would threaten the company’s survival.

Bearish views argue that the $15.5 billion preferred stock redemption pressure is a long-term overhang. But as stated earlier, in extreme cases the company has the right to pause preferred stock dividend payments.

What stage does this reflect for the current market?

STRC’s violent volatility combined with MSTR’s stock price pullback are classic signs of the late stage of a cycle. Whether in the crypto market or traditional finance, each market cycle follows a similar path: bull markets rise—investor greed and leverage increase, aided by various financial instruments for arbitrage—risk erupts and the trend reverses; once the market clears all excess leverage, the bottom appears.

STRC is a typical case: funds seeking high yield and low volatility flowed into Strategy, and Strategy then used that money to buy Bitcoin. In simple terms, relatively steadier high-return funds moved into Bitcoin assets with extremely high volatility and no stable income.

These funds are fundamentally mismatched with Bitcoin’s risk profile, and they must be completely flushed out before the market can find its bottom—and what’s happening right now is exactly this clearing process.

A similar situation has also occurred in the history of the crypto market. During the 2019-2021 bull market, Grayscale GBTC traded at a large and persistent premium to its underlying Bitcoin holdings. Institutions could subscribe to GBTC at net asset value, lock it up for six months, and then sell it in the secondary market at a 20%~50% premium. Massive amounts of capital flowed into Bitcoin through this process, giving rise to a range of complex financial arbitrage models. Starting in 2021, the GBTC premium rapidly went to zero, and various financial arbitrage tools gradually deleveraged; the market then found the bottom of the bear market.

I believe history will repeat itself this time as well.

When will the market bottom arrive?

I can’t provide an exact timeline—no one can accurately predict it. The bottom of the market can only be confirmed in hindsight.

But in the near term, you can focus on a few “bottoming” signals: first, MSTR’s trading price is below net asset value per share, which indicates that market greed has completely flipped into panic—an important signal for forming a base; second, the Crypto Fear & Greed Index reaches historical extremes and enters the extreme fear zone, which is suitable for building long positions; third, funding rates in the derivatives market remain persistently negative, meaning retail investors’ willingness to short Bitcoin far exceeds their willingness to go long. In short, when market pessimism reaches its peak, that’s the opportunity for reversal.

The current market is in a clearing phase, and the problems exposed by STRC are a necessary part of the cycle adjustment. Every market cycle has to go through this kind of pain—there’s no avoiding it.

The market is still digesting various risks. I firmly believe the bottom is within reach, and a new round of bull market will begin this fall.