Bitwise CIO: Bitcoin may be nearing a bottom as STRC stress drains excess leverage
Bitwise Chief Investment Officer Matt Hougan says Bitcoin could be getting closer to a market bottom after recent stress around STRC — a perpetual preferred issued by MicroStrategy that the company used to raise capital to buy Bitcoin.
In his weekly memo, Hougan describes the volatility in MicroStrategy’s STRC preferred stock as a “late‑cycle unwind” that’s cleansing excess leverage, not evidence of widespread structural failure. “The volatility in STRC is a natural and important part of the crypto cycle. I think we’re nearing the bottom,” he wrote.
What happened to STRC and why it matters
- STRC is a perpetual preferred designed to pay a high yield while staying near a $100 par value. MicroStrategy used the issuance to raise roughly $10.5 billion, with proceeds deployed into Bitcoin purchases.
- As Bitcoin and MicroStrategy’s stock (MSTR) fell, STRC plunged to about $75 — and briefly to a record low of $73.62, according to Barron’s — sparking concern about MicroStrategy’s ability to fund preferred dividends.
- In response, MicroStrategy increased STRC’s annual dividend to 12%, authorized up to $2 billion in common and preferred share buybacks, and unveiled a capital‑management framework allowing Bitcoin sales to shore up reserves, meet dividend and debt obligations, and fund repurchases. Barron’s also reported authorizations for up to $1.25 billion in Bitcoin sales to strengthen liquidity.
Hougan’s take: not a forced liquidation, but a regime change
Hougan argues these steps mean MicroStrategy is unlikely to remain an uninterrupted, one‑way buyer of Bitcoin. “For years, MicroStrategy has been the most dominant Bitcoin buyer in the world and a one way source of Bitcoin demand. Those days are likely over,” he wrote. That said, he does not expect MicroStrategy to become a forced seller — the firm still has sufficient assets to cover debt and preferred claims, and Bitcoin would need to fall much further for balance‑sheet stress to become acute.
The bigger picture: market reset and where demand will come from
Hougan compares the STRC unwind to the collapse of the Grayscale Bitcoin Trust premium after the 2019–2021 bull run: both mechanisms funneled capital into Bitcoin during strong markets but then lost support and forced a painful reset. He thinks the next Bitcoin cycle will rely more on institutional sources such as banks, asset managers, pensions, endowments, sovereign wealth funds and financial advisers rather than retail‑style leveraged structures.
Macro tailwinds and market signals to watch
Bitcoin briefly topped $62,000 after softer U.S. jobs data — the U.S. added 57,000 jobs in June, below expectations — which lifted risk assets and weakened the dollar as traders pared back bets on Fed tightening. Hougan recommends watching several indicators for signs a bottom is forming: MicroStrategy trading below the value of its Bitcoin holdings, extreme readings on the Crypto Fear & Greed Index, and persistent negative funding rates in derivatives markets.
Bottoms are hard to call in real time, Hougan cautions, but the STRC unwind suggests the market may be entering the final stage of this reset. “I’m convinced the bottom is closer than ever,” he wrote, adding that he expects a new Bitcoin bull market to begin in the fall.
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