Asset manager Bitwise said the sharp decline in Strategy’s (MSTR) perpetual preferred stock, STRC, is a hallmark of a maturing crypto cycle rather than evidence of a looming crisis at the company.
Bitcoin’s recent pullback below $60,000 coincided with STRC breaking from its intended $100 par value, as investors questioned Strategy’s willingness to maintain preferred dividend payments.
While the selloff rattled markets, Bitwise argued Strategy remains fundamentally well-capitalized, with roughly $52 billion in liquid assets against about $7 billion of debt.
"The volatility in STRC is a natural and important part of the crypto cycle. I think we’re nearing the bottom," Bitwise CIO Matt Hougan said in a Wednesday blog post.
Bitcoin was trading around $61,400 at publication time, STRC at $88.
According to Hougan, Strategy’s decision to stop defending STRC’s $100 price through automatic rate hikes, and instead allow the security to trade freely while retaining the option to sell bitcoin or repurchase STRC, was a pragmatic response to deteriorating market conditions.
Earlier this week, Strategy unveiled a capital framework allowing selective bitcoin sales to fund preferred dividends, while authorizing preferred share repurchases and stock buybacks. It also set a minimum cash reserve covering 12 months of preferred dividend and interest payments. Its $2.55 billion cash balance currently covers about 17 months.
Hougan said the episode marks a broader shift in Strategy’s role within bitcoin markets. Rather than serving as crypto’s dominant, one-way buyer, the firm is likely to become a more flexible participant whose bitcoin purchases or sales depend on market conditions.
Looking ahead, Bitwise believes institutional investors, including asset managers, banks, pensions, endowments and sovereign funds, are positioned to replace Strategy as bitcoin’s primary source of demand.
More broadly, STRC volatility is seen as part of the leverage unwind that typically marks the late stages of every crypto cycle. As speculative excess is flushed from the system, the market moves closer to establishing a durable bottom, though the exact timing remains impossible to predict, the report added.
Wall Street bank JPMorgan said Strategy's new policy allowing selective bitcoin sales to fund preferred dividends creates avoidable two-way risk, increasing uncertainty and market volatility.
Read more: JPMorgan says Strategy's bitcoin sales policy adds 'two-way risk' to crypto markets
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