Bitwise: Is the sharp drop in STRC and MSTR a typical sign of the end of a cycle?

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

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

Recently, many clients have asked me questions about STRC and MSTR. Since the two can clearly reflect what stage the current market is in, I will answer them in a unified way here.

What is STRC?

STRC is a preferred stock product that Strategy launched last year. Its original design goal was to provide investors with high yield, while keeping the share price stable at or near $100 of face value.

In the initial phase of issuance, STRC’s annualized dividend yield was 9%. The company pledged: if the share price fell below $100, it would raise the dividend yield by 0.25% to 0.50% to attract buy-side demand and push the price back toward the $100 face value.

This mechanism worked in the short term: Strategy gradually increased the dividend yield to 11.5%, and the STRC share price remained stable around $100 for the long term. Its high-yield, low-volatility characteristics drew investors in; a total of $10.5 billion flowed into STRC. The company then used the raised funds to increase its Bitcoin holdings.

What caused the change?

Over the past several weeks, Bitcoin and MSTR’s share prices weakened in sync, and investors began to worry whether Strategy could and would continue to pay STRC dividends. STRC’s share price dropped sharply, falling from the $100 face value level to $75 at the low.

Are investors’ concerns reasonable?

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

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

The core risk lies in the call option: Strategy can independently pause the distribution of STRC dividends. Unpaid dividends will accrue interest, but there are no contractual provisions requiring mandatory payout at present. With Bitcoin prices continuing to fall, the market worries the company lacks cash flow to pay dividends, and investors panic-sell STRC.

Did the company ultimately stop paying dividends?

No.

This Monday, Strategy announced a new capital framework: the company may periodically sell Bitcoin to meet its dividend obligations. At the same time, it declared it will no longer use dividend yield increases to backstop the $100 face value; STRC’s price will float freely. In addition, the company may also repurchase STRC shares in the secondary market.

The announcement had an obvious positive effect: on Monday, both MSTR and STRC shares rebounded sharply.

Why didn’t Strategy choose to keep raising STRC’s dividend yield?

If it followed the old mechanism, it would have to raise the yield to an extremely risky ultra-high rate.

Under the original plan, only small rate hikes were needed to keep the $100 share price stable. But when STRC fell to $75, the market’s actual yield had already reached 15.4%. To pull it back to face value, the nominal dividend yield would need to be increased from 11.5% by nearly 4 percentage points to 15.4%.

Even then, the effect might not be ideal. Raising dividends sharply would further intensify market panic. Investors would question the source of the company’s dividend-paying funds, which would further pressure the share price downward.

When the price dropped to $75, there was no short-term power to repair the $100 face value.

Under the new framework, can STRC get back to $100?

Probably not. Strategy no longer relies on a mechanized approach to anchor the $100 share price. While the official dividend yield has been raised to 12%, only if the Bitcoin price strengthens significantly could STRC plausibly return to the $100 range.

What signal does this send?

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

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

The key is that it will not massively sell. Existing mechanisms do not force the company to sell tens of billions of dollars of Bitcoin each year. If Bitcoin enters a bull market, it will very likely return to a net-buying posture again.

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 think the answer is institutional capital of various kinds.

Looking across Bitcoin’s development, the market’s main buyers have kept rotating: the crypto-punk community, Asian retail investors, U.S. individual investors, Grayscale GBTC, MSTR—all dominated the market in sequence. The core driving force of the next行情 will be institutional investors—global banks, asset management firms, pension funds, university endowments, sovereign wealth funds, and wealth management advisors. They hold the largest pools of capital worldwide.

Various signs already confirm this trend: Morgan Stanley recently launched its own Bitcoin ETF; Wells Fargo included Bitcoin in a standardized asset allocation portfolio; last year, Texas became the first U.S. state to establish a Bitcoin strategic reserve; and multiple sovereign funds and national-level banks already hold Bitcoin or have initiated related research projects. Although 2026’s Bitcoin spot ETF continued to see net outflows, since the product launched in 2024 it has cumulatively attracted more than $50 billion, and now most mainstream wealth-management platforms have already rolled out the product.

Is there a risk of liquidation and blow-up for Strategy?

Based on the available data, there is no such hazard. The liquidation conspiracy theories circulating in the market completely fail to match financial calculations. As mentioned earlier, the company’s total current assets are $52 billion, and its total debt is only $7 billion. Only if Bitcoin prices crash by more than 70% and remain depressed for the long term would the company’s survival be threatened.

Bearish commentators argue that the preferred stock redemption pressure of $15.5 billion will be a long-term overhang, but as said earlier, in extreme cases the company has the right to pause preferred stock dividend payments.

What stage is the current market in?

The combination of STRC’s violent volatility and MSTR’s share price pullback is a typical feature of the late stage of the cycle. Whether in the crypto market or traditional finance, each market cycle follows a similar path: bull markets rise—investor greed and leverage build—supported 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: capital seeking high yield and low volatility flowed into Strategy; then Strategy used that money to buy Bitcoin. Simply put, the preference of steady high-yield capital flowed into Bitcoin assets with extremely high volatility and no stable yield.

This type of capital is inherently mismatched with Bitcoin’s risk attributes. It must be fully flushed out before the market can identify the bottom—and what’s happening right now is precisely that flushing process.

The crypto market has seen similar situations historically. During the 2019-2021 bull market, Grayscale GBTC traded at a persistent and large premium versus the Bitcoin it held. Institutions could subscribe for GBTC at net asset value, lock it up for six months, and then sell it in the secondary market at a premium of 20%~50%. Huge amounts of capital poured into Bitcoin through this mechanism, giving rise to various complex financial arbitrage patterns. Starting in 2021, the GBTC premium quickly went to zero, and different arbitrage tools gradually reduced leverage; the market then discovered the bear-market bottom as well.

I think this history will repeat itself again this time.

When will the market bottom arrive?

I can’t provide an exact timeline; nobody can accurately predict it. The bottom of a行情 can only be confirmed after the fact.

But you can focus on several bottoming signals in the near term: first, MSTR’s trading price falls below its net asset value per share—this means market greed has completely flipped to panic, a key signal for building the base; second, the Crypto Fear & Greed Index reaches historical extreme levels, entering an extreme fear zone—this is when it’s suitable to position for longs; third, derivatives funding rates stay negative continuously, meaning retail investors’ willingness to short Bitcoin far exceeds their willingness to go long. In short, the turnaround opportunity comes when market pessimism reaches its extreme.

The current market is in a capital/position deleveraging and risk-clearing phase, and the issues exposed by STRC are a necessary step in the cycle adjustment. Every market cycle has to go through this kind of pain—inevitably.

The market is still digesting various risks, and I firmly believe the bottom is right around the corner. A new bull market will begin this fall.