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Bitwise CIO Matt Hougan said that Strategy should no longer be seen as merely a one-way buyer in the Bitcoin market. According to Hougan, the company’s newly announced capital framework allows it to meet its obligations by converting its Bitcoin assets into cash when necessary.
Hougan stated that the recent sharp volatility in STRC and the pullback in MSTR shares resemble the classic leverage unwinding seen at the end of cycles in cryptocurrency markets. The Bitwise executive argued that this process was previously observed in the unwinding of the GBTC premium, where excessive leverage was removed from the system.
Hougan reminded that Bitcoin fell below $60,000 last week, reaching its lowest level since 2024. He stated that many factors contributed to this decline, but one of the biggest reasons was STRC, the perpetual preferred stock vehicle issued by Strategy.
Hougan stated that STRC was designed to provide investors with high returns and trade near its nominal value of $100. Initially offering a 9% yield, Strategy aimed to boost demand by increasing the yield by 0.25 to 0.50 percentage points if the price fell below $100. Hougan noted that this strategy worked for a while, eventually increasing the yield to 11.5% and keeping the STRC price close to $100.
However, Hougan noted that with the decline in Bitcoin and MSTR shares, investors began to question Strategy’s ability and willingness to pay STRC dividends, causing the STRC price to fall from $100 to $75.
According to Hougan, investors’ concerns were not entirely unfounded, but Strategy’s balance sheet generally appeared strong. He noted that the company held $49.6 billion in Bitcoin and $2.6 billion in cash assets, while having $6.8 billion in debt and $15.5 billion in preferred stock liabilities. Hougan stated that if Strategy were to sell its current Bitcoin assets, it could meet its dividend obligations for many years to come.
Bitwise’s CIO stated that the real question is whether the company will do it. Hougan reminded that Strategy can suspend STRC dividend payments at its own discretion, which is why investors are concerned that the company might halt payments while the Bitcoin price is falling.
Hougan stated that Strategy addressed these concerns with the new framework it announced on Monday. He explained that under this framework, the company will be able to periodically sell Bitcoin to meet its dividend obligations. Hougan also noted that Strategy will no longer automatically increase interest rates to maintain the STRC price at $100, instead allowing STRC to trade at a variable price. The company also announced that it will be able to purchase STRC from the open market.
According to Hougan, this announcement was positively received by the market, and both MSTR and STRC prices experienced sharp increases.
Hougan also considered why Strategy is not increasing the STRC yield further, saying that doing so could reach alarming levels in the market. He noted that when STRC was trading at $75, its effective yield reached 15.4%, and that Strategy might have to increase the nominal yield from 11.5% to approximately 15.4%, which could further worry investors.
Hougan stated that under the new framework, there is no guarantee that STRC will return to $100. He noted that Strategy will no longer algorithmically defend the $100 price, and despite the official return being increased to 12%, he assessed that a return to $100 for STRC would be difficult without a strong recovery in the Bitcoin price.
Bitwise’s CIO argued that all these developments indicate a change in Strategy’s role in the Bitcoin market. Hougan stated that the company has been the world’s most dominant Bitcoin buyer and one-way source of demand for years, but that era is likely over. According to him, Strategy will now buy or sell Bitcoin depending on market conditions.
However, Hougan stated that he does not expect Strategy to become a large-scale Bitcoin seller. He noted that there is no mechanism forcing the company to sell more than a few billion dollars worth of Bitcoin annually, and added that if the Bitcoin price rises again, Strategy is likely to become a net buyer.
“Institutional Investors Could Replace Strategy”
Hougan believes that the largest group of Bitcoin buyers that could replace Strategy will be institutional investors. He states that global banks, asset managers, pension funds, foundations, sovereign wealth funds, and financial advisors could become the leading source of demand in the next market cycle, noting that Bitcoin ETFs have attracted over $50 billion in inflows since their launch in 2024 and have been endorsed on many major financial advisor platforms.
Hougan also addressed claims that Strategy is facing liquidation risk, stating that based on current data, he does not see such a risk. He noted that the company has approximately $52 billion in liquid assets compared to $7 billion in debt, arguing that Bitcoin would need to fall by more than 70% and remain at those levels for an extended period to truly put the company at risk.
According to Hougan, the volatility in STRC and the decline in MSTR are typical examples of end-of-cycle market dynamics. He notes that in bull markets, investors greedily use leverage, financial engineering products increase, and at some point the system begins to reverse. Hougan states that market bottoms are usually formed by the cleanup of excessive leverage.
The Bitwise executive stated that STRC is a classic example of this process. According to Hougan, investors seeking low volatility and high returns channeled their money into Bitcoin purchases through Strategy. However, noting that Bitcoin, by its nature, offers neither low volatility nor consistently high returns, Hougan said that this type of capital needs to be removed from the market.
Hougan recalled that a similar process occurred with the GBTC premium during the 2019-2021 period. He noted that during that time, institutional investors were able to create GBTC at fair value and sell it six months later at a premium of 20% to 50%, which attracted a large amount of capital to Bitcoin. However, he added that eventually, the premium and the related financial engineering had to be unraveled.
Hougan Believes Bitcoin Bull Market Could Arrive in the Fall
Hougan stated that it’s impossible to make a definitive prediction about when the market bottom will be seen, but added that some indicators can be monitored. He said that MSTR trading below its net asset value could signal that greed has completely turned into fear, and that the Crypto Fear and Greed Index approaching extreme fear levels and leveraged funding ratios turning significantly negative could also be considered bottom signals.
Hougan argued that the STRC-related problems were a painful but necessary market cleanup. The Bitwise CIO stated that he believes the bottom of the crypto market is closer than ever and that a new bull market will begin in the fall.
*This is not investment advice.