Bitwise Chief Investment Officer Matt Hougan said the sharp selloff in Strategy's STRC preferred stock reflects end-of-cycle deleveraging. Bitcoin fell below $60,000 in late June, its lowest level since 2024, a decline Hougan attributed to turmoil around STRC, the perpetual preferred equity instrument Strategy uses to fund bitcoin purchases. Hougan said the selloff is painful but necessary and compared it to institutional deleveraging events that preceded previous market bottoms.
STRC Preferred Stock Falls to $75 Amid Dividend Concerns
STRC launched last year targeting a $100 par value and initially paying a 9% yield. Strategy said it would raise the yield by 0.25 to 0.50 percentage points whenever the price drifted below $100 to draw buyers back toward par. The mechanism worked for a while as the rate climbed to 11.5%, the price held near $100, and investors poured $10.5 billion into the instrument to help fund Strategy's bitcoin purchases.
As bitcoin and MSTR both fell over the following weeks, investors grew doubtful that Strategy could or would continue paying STRC's dividend, and the price broke from par, falling as low as $75. Hougan said the concern was reasonable but overstated. Strategy holds approximately $49.6 billion in bitcoin and $2.6 billion in cash against $6.8 billion in debt and $15.5 billion in preferred equity, enough to cover 28 years of dividend obligations if it sold its bitcoin today, according to Hougan.
The real uncertainty was whether Strategy would actually keep paying, since it can suspend STRC's dividend at its own discretion. At $75, STRC's effective yield had already reached 15.4%. Hougan said pushing the nominal rate from 11.5% to that level risked spooking investors further about where Strategy would find the cash.
Strategy Introduces Digital Credit Capital Framework on June 29
On June 29, Strategy introduced a new framework allowing it to periodically sell bitcoin to fund dividend payments. The company said it would stop automatically raising STRC's interest rate to defend the $100 price, instead letting the stock trade at a variable price, and said it may buy STRC on the open market. Both MSTR and STRC rose sharply on the news.
Hougan said raising the rate further wasn't a realistic option. He does not expect STRC to trade back to $100 until bitcoin's price rises significantly. Hougan said Strategy's run as bitcoin's most dominant, one-way buyer is likely over. Going forward, the firm could buy or sell depending on market conditions, though he doesn't expect large-scale selling, since nothing forces Strategy to sell more than a few billion dollars of bitcoin a year.
Institutions Emerge as Bitcoin Buyers with $50 Billion ETF Inflows
Hougan pointed to institutions as the more likely candidate to lead the next phase of bitcoin demand. He cited Morgan Stanley's proprietary bitcoin ETFs, Wells Fargo's addition of bitcoin to model portfolios, Texas's strategic bitcoin reserve, and more than $50 billion in cumulative bitcoin ETF inflows since 2024.
Hougan dismissed liquidation concerns around Strategy as defying the math, arguing that bitcoin would need to fall more than 70% and stay there for years to put the company at risk. Bitwise's European head of research, Andre Dragosch, offered a similar timeline in a separate post on X, saying July looks likely to mark bitcoin's shift from a bear to a bull regime. Dragosch said a sharp reversal in semiconductor stocks could prompt a dovish reaction from the Federal Reserve, and that his own base case is for the market to price in a bottom ahead of the broader consensus, which he expects to land on October.
Hougan Compares STRC Selloff to 2021 GBTC Premium Collapse
Hougan compared STRC's unwind to Grayscale's GBTC premium collapse in 2021, when institutional investors who created GBTC shares at fair value and sold them into the market at premiums of 20% to 50% pulled large sums into bitcoin before that trade fell apart. He said capital chasing high yield and low volatility was never suited to bitcoin and needed to be cleared out before the market could bottom.
Hougan named a few signals he's watching for a bottom, including MSTR trading at a discount to its net asset value, the Crypto Fear and Greed Index approaching all-time lows, and bitcoin funding rates turning negative as more retail traders bet on lower prices than higher ones. Bitwise's CIO said he expects a new bull market to take hold by fall, though he acknowledged that market bottoms are only obvious after the fact.
FAQ
What happened to Strategy's STRC preferred stock in late June?
STRC preferred stock fell as low as $75 from its $100 par value in late June as investors grew doubtful that Strategy could or would continue paying dividends. The selloff occurred as bitcoin fell below $60,000, its lowest level since 2024, and investors questioned Strategy's ability to sustain the dividend amid market turmoil.
What did Strategy announce on June 29 regarding STRC?
On June 29, Strategy introduced a new framework allowing it to periodically sell bitcoin to fund dividend payments. The company said it would stop automatically raising STRC's interest rate to defend the $100 price and would instead let the stock trade at a variable price. Strategy also said it may buy STRC on the open market.
