Bitwise CIO Matt Hougan has said Bitcoin may be moving closer to a market bottom as Strategy’s STRC stress drains excess leverage from the market.
Summary
- Bitwise CIO Matt Hougan says the STRC unwind could signal Bitcoin is nearing a market bottom.
- Hougan expects institutional investors to replace Strategy as the primary driver of Bitcoin demand.
- He believes the current deleveraging phase could pave the way for a new Bitcoin bull market this fall.
Bitwise Chief Investment Officer Matt Hougan wrote in his latest weekly memo that the recent volatility in Strategy’s STRC preferred stock looks like a late-cycle unwind rather than a sign of more serious structural damage.
“The volatility in STRC is a natural and important part of the crypto cycle. I think we’re nearing the bottom.”
STRC stress has forced leverage out of Bitcoin
STRC is a perpetual preferred stock created by Strategy to offer investors a high yield while keeping the instrument close to its $100 par value. Hougan said Strategy used the product to raise about $10.5 billion, with proceeds helping finance more Bitcoin purchases.
The trade weakened last week after Bitcoin and MSTR declined, sending STRC to roughly $75 and raising concerns over Strategy’s ability to keep funding preferred dividends. The company responded this week by increasing STRC’s annual dividend to 12%, authorizing up to $2 billion in common and preferred stock buybacks, and introducing a capital management framework that allows Bitcoin sales to strengthen reserves, meet dividend and debt obligations, and fund share repurchases.
According to Barron’s, STRC recently fell to a record low of $73.62 before Strategy increased the dividend and moved toward what it called active capital management. The report also said Strategy authorized up to $1.25 billion in Bitcoin sales to help strengthen reserves.
Hougan said the move means Strategy may no longer act as a one-way source of Bitcoin demand. “For years, Strategy has been the most dominant Bitcoin buyer in the world and a one way source of Bitcoin demand,” he wrote. “Those days are likely over.”
Institutions could lead the next Bitcoin rally
Hougan does not expect Strategy to become a forced seller, saying the company still has enough assets to cover debt and preferred obligations. He argued Bitcoin would need to fall much further and stay depressed before Strategy faced serious balance sheet pressure.
Instead, Hougan expects the next cycle to depend more on institutions, including banks, asset managers, pension funds, endowments, sovereign wealth funds, and financial advisers.
The Bitwise CIO compared the STRC unwind with the collapse of the Grayscale Bitcoin Trust premium after the 2019 to 2021 bull market. In his view, both structures pulled capital into Bitcoin during strong markets before losing support and forcing a painful reset.
Meanwhile, Bitcoin briefly climbed above $62,000 after softer U.S. jobs data improved risk appetite. Reuters reported that the U.S. added 57,000 jobs in June, below expectations, while stocks rose and the dollar weakened as traders reduced expectations for Fed tightening.
Hougan said investors should watch for MSTR trading below the value of its Bitcoin holdings, extreme Crypto Fear and Greed Index readings, and negative funding rates. While he warned that bottoms are impossible to call in real time, he wrote that the STRC unwind suggests the market is entering the final stage of the cycle.
“I’m convinced the bottom is closer than ever,” Hougan wrote, adding that he expects a new Bitcoin bull market to begin in the fall.
