• Bitwise CIO Matt Hougan states that Strategy's STRC volatility reflects late-cycle deleveraging, suggesting Bitcoin may be approaching a market bottom.
• The report dismiss fears of Strategy liquidation, arguing that its Bitcoin holdings and cash comfortably outweigh debt despite recent STRC volatility.
• Hougan notes that institutional investors will replace Strategy as Bitcoin's primary demand driver, adding that he expects a bull market this fall.

The recent volatility surrounding Strategy's perpetual preferred stock, STRC, could signal that Bitcoin (BTC) is approaching a cycle bottom, according to Bitwise CIO Matt Hougan.

STRC volatility could mark broader Bitcoin market reset

In a Wednesday report, Hougan argued that the sharp decline in STRC and Strategy's MSTR stock should be viewed as "classic end-of-cycle dynamics" rather than evidence of a broader structural threat to Bitcoin.

"The volatility in STRC is a natural and important part of the crypto cycle. I think we’re nearing the bottom," wrote Hougan.

STRC, launched by Strategy last year, is designed to offer investors a high dividend yield while maintaining a share price near its $100 par value. The company initially increased the yield on its preferred stock as needed to support its price, using proceeds from investor demand to purchase more Bitcoin.

However, as Bitcoin and MSTR shares weakened in recent weeks, investor concerns over Strategy's ability to continue paying STRC dividends intensified, pushing the preferred stock to as low as $75.

To address those concerns, Strategy announced earlier this week that it would adopt a new framework that would allow it to periodically sell Bitcoin to fund dividend payments. The company also said it could repurchase STRC in the open market.

Hougan stated that the company had little choice but to abandon its original pricing mechanism.

"At $75, STRC's $100 'par value' was too far gone to save in the short-term," he wrote.

The Bitwise executive added that raising STRC's dividend high enough to restore its share price would likely have intensified concerns over Strategy's ability to sustain the higher payouts. Despite the recent volatility, Hougan maintained that Strategy does not face any meaningful financial distress.

"The liquidation conspiracy theories seem to defy math," he wrote.

He noted that Strategy currently holds approximately $49.6 billion in Bitcoin and $2.6 billion in cash, compared with $6.8 billion in debt. Even with its preferred equity obligations, Hougan argued the company retains ample flexibility because dividend payments can be suspended if necessary.

"Bitcoin would have to trade down massively (70%+) and stay there for multiple years to put the company at risk," he added.

Institutional adoption to shape Bitcoin's next phase

Hougan also suggested that Strategy's role as Bitcoin's dominant corporate buyer is beginning to fade as institutional adoption accelerates.

"I think it will be institutions," Hougan noted while discussing the likely drivers of Bitcoin's next wave of demand. He pointed to growing participation by banks, asset managers, pension funds, sovereign wealth funds and financial advisers, who manage large amounts of capital.

The report also cited developments such as Morgan Stanley's Bitcoin ETF offerings, Wells Fargo's model portfolio allocations and continued institutional adoption of spot Bitcoin ETFs since their launch.

Hougan argued that the current correction follows the pattern seen in previous crypto market cycles, where periods of excessive optimism and leverage are eventually followed by a broad market reset. He added that the bottom is close and expects the bull market to resume this fall.