Bitwise CIO: STRC Volatility Signals the End of a Cycle; the Market Bottom May Be Near
Recently, Bitwise Chief Investment Officer Matt Hougan shared his views on the market-driven volatility of the STRC preferred stock instrument of Strategy (formerly MicroStrategy) and how it may affect market cycles.
He noted that STRC’s share price fell from around $100 to $75, mainly due to investors’ concerns about Strategy’s ability and willingness to pay dividends.
However, Strategy has already announced a new framework that enables dividend obligations to be met by regularly selling Bitcoin, and it will stop automatically raising interest rates in order to defend the $100 share price.
Hougan believes STRC’s volatility is a typical “end-of-cycle” phenomenon. At the top of a market cycle, investors often chase higher yields through contracts; only after this leverage is flushed out does the market truly bottom.
In essence, STRC is a vehicle for capital seeking high returns and low volatility to buy Bitcoin—yet Bitcoin does not provide both of those qualities. This capital needs to be removed from the market.
He expects the era in which Strategy was the most important buyer of Bitcoin may be coming to an end. Going forward, institutional investors (banks, asset managers, pension funds, sovereign wealth funds, etc.) will take over as the primary demand source, and he pointed out that firms such as Morgan Stanley and Wells Fargo have already begun positioning.
Hougan said that while he can’t precisely predict the market bottom, investors can watch signals such as MSTR’s discount-to-NAV trading, the Fear & Greed Index dropping into extreme fear territory, and the rates on leveraged funds turning negative.
Regarding concerns about liquidation risk, he said it’s unlikely to happen. Strategy currently holds $52 billion in liquid assets, while its debt is only $7 billion. For Bitcoin to pose a liquidation threat, it would need to drop more than 70% and remain that way for years.
Overall, despite STRC’s volatility and the pullback in MSTR’s share price, Hougan believes this reflects typical end-of-cycle dynamics. This may suggest the market bottom is near and that a new bull market cycle could begin in the fall.
#STRC #MSTR