Author: Matt Hougan (Chief Investment Officer of Bitwise)

Core viewpoint: Bitcoin has continued to weaken throughout the year, falling below $60000 at one point, hitting a new low since 2024. The core trigger for this market correction comes from the violent fluctuations of the asset related products STRC and MSTR, which are the core targets of cryptocurrency. In the view of Matt Hougan, Chief Investment Officer of Bitwise, the price collapse of STRC and the clearance of leveraged funds are typical features of the end of the cryptocurrency market cycle. Currently, the market is in the final stage of risk clearance, and the bottom of the market is approaching. It is expected to start a new bull market this autumn.

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1、 Source tracing STRC: the core funding tool that supports the current Bitcoin bull market

STRC is a perpetual preferred stock product launched by cryptocurrency giant Strategy last year, and it was also an important funding driver for the previous Bitcoin market rally. The core design logic of this product is highly attractive: based on a fixed face value close to $100, it provides investors with stable high dividend returns, balancing low volatility and high returns.

In the initial stage of product launch, the annualized dividend yield of STRC is set at 9%, accompanied by a core support mechanism: once the stock price falls below the face value of $100, the company will increase the dividend yield by 0.25% -0.50% to drive price recovery by enhancing investment attractiveness. This mechanism has been successfully implemented, and Strategy has continued to increase the dividend yield of STRC to 11.5%, keeping the STRC price stable around its face value of 100 yuan for the long term.

The stable price performance and ultra-high annualized returns have attracted a massive influx of stable funds, with a total of over 10.5 billion US dollars flowing into STRC. And Strategy used all of this huge fundraising to increase its holdings of Bitcoin, becoming the core bullish force in the market's sustainability and providing solid financial support for the Bitcoin bull market.

2、 Market mutation: STRC drops deeply, market panic spreads

The market landscape has completely reversed in the near future. As the price of Bitcoin continues to weaken, MSTR's stock price oscillates downward, and investors strongly question Strategy's dividend redemption ability, causing market confidence to quickly collapse. As a result, the price of STRC experienced a deep drop, dropping from a constant face value of $100 to $75, significantly breaking through the price bottom line of product design.

The current market panic is not unfounded, but there are also obvious cognitive biases that need to be assessed from both the company's fundamentals and potential risks.

From a fundamental perspective, Strategy has sufficient risk resistance and there is no short-term redemption crisis. As of now, the company holds Bitcoin assets with a market value of $49.6 billion, combined with $2.6 billion in cash reserves, totaling $52 billion in current assets; The total liabilities of the company are only 6.8 billion US dollars, with an overall preferred stock size of 15.5 billion US dollars. According to calculations, even if all Bitcoin assets are cleared, the funds obtained are sufficient to cover the STRC dividend redemption needs for the next 28 years, indicating sufficient fundamental resilience.

The core risks and root causes of panic in the market lie in the uncertainty brought about by loopholes in rules. According to the product terms, Strategy has the option to independently suspend the distribution of dividends, and undistributed dividends only accumulate interest without mandatory redemption constraints. Under the expectation of continuous decline in Bitcoin and pressure on cash flow, investors are concerned that the company's suspension of interest payments may trigger a large-scale sell-off, driving down the price of STRC.

3、 The implementation of a new capital framework: Thoroughly rewriting the rules of the STRC era

Faced with severe market fluctuations, Strategy officially announced a new capital operation framework on Monday, completely ending the original STRC bottoming out model and bringing strong recovery to market sentiment. MSTR and STRC stock prices immediately rebounded synchronously.

The core adjustment of the new framework includes three dimensions: firstly, the company will flexibly sell some Bitcoin assets, which will be specifically used to redeem STRC dividends and strengthen its ability to pay interest; The second is to completely abandon the dividend yield adjustment mechanism as a bottom line, no longer artificially anchor the $100 face value, and allow the STRC price to fluctuate freely; The third is to activate the secondary market repurchase mechanism and timely repurchase STRC shares to stabilize prices.

The core reason for the market's concern about why there is no longer an increase in dividend premiums is that the old mechanism has completely failed. When STRC fell to $75, the actual market yield had already reached 15.4%. If we want to bring back the face value of 100 yuan, we need to significantly increase the basic dividend yield of 11.5% by nearly 4 percentage points. Radical interest rate hikes not only fail to stabilize the market, but also exacerbate investors' doubts about the company's funding chain, further amplifying panic and lowering prices, which is not worth the loss.

After this adjustment, STRC has completely bid farewell to the rigid 100 yuan face value anchor. Even if the official dividend yield is raised to 12%, whether it can return to the $100 range in the future depends entirely on the trend of the Bitcoin market, and the market pricing is completely market-oriented.

4、 Pattern reshaping: MSTR's one-way coin buying era comes to an end, with institutional funds taking over as the dominant force

Behind the reconstruction of the STRC rules is the iterative replacement of the core players in the Bitcoin market, marking the official end of the era where Strategy dominated the market.

In the past few years, Strategy has been the most stable and largest bullish source in the global Bitcoin market, with continuous fundraising through STRC and a one-way increase in holdings of Bitcoin, deeply influencing the pace of bull and bear markets. But after the new framework is implemented, the company will bid farewell to the unilateral increase in holdings model and instead flexibly buy and sell Bitcoin according to market conditions.

It is worth noting that the market does not need to worry about large-scale selling pressure: the new mechanism will not force companies to passively sell Bitcoin, and in a bull market, Strategy is still expected to return to a net buying state. But it cannot be denied that its absolute influence on the Bitcoin market will be significantly weakened, and it will no longer be the core driving force of the next cycle.

The replacement of MSTR as the main force in the Bitcoin market will be global professional institutional funds. Reviewing the development history of Bitcoin, the main players in the market have gone through multiple iterations, including cypherpunk, Asian retail investors, American individual investors, Grayscale GBTC, and MSTR. The core increment of the next bull market will come from top funding pools such as banks, asset management institutions, pension funds, university endowments, and sovereign wealth funds.

The trend of institutional entry is very clear: Morgan Stanley has launched a dedicated Bitcoin ETF, and Wells Fargo has included Bitcoin in its standard asset allocation; Texas, USA has established a Bitcoin strategic reserve, with the entry of sovereign funds and national banks from multiple countries; Since its launch in 2024, the Bitcoin spot ETF has accumulated a net inflow of over 50 billion US dollars and has become a standard for mainstream wealth management.

5、 Risk debunking: Strategy has no liquidation and liquidation crisis

Matt Hougan has explicitly refuted the conspiracy theories circulating in the market about "MSTR and STRC liquidation and liquidation". From financial data, Strategy does not have any survival crisis or liquidation risk.

The company's current assets of $52 billion far exceed its total liabilities of $7 billion, indicating a healthy financial structure. Only when the price of Bitcoin drops by more than 70% and remains at a long-term low level can it impact the company's fundamentals. The $15.5 billion preferred stock redemption pressure that the market is concerned about can be flexibly resolved through the suspension of dividend payments, and extreme risks are controllable.

6、 Cycle analysis: Leveraged liquidation is coming to an end, and the market bottom is approaching

In Bitwise's view, the recent sharp decline in STRC and the pullback in MSTR are iconic features of the end of the cryptocurrency market cycle, fully in line with the common cyclical patterns of traditional finance and cryptocurrency markets: in the middle and later stages of a bull market, investors' greedy emotions heat up, leveraged funds flood, and various arbitrage financial instruments prevail; After the market reversal, high-risk leverage is concentrated and cleared, and the market thoroughly digests the risks before identifying the bottom.

STRC is the epitome of the core leverage tool in this cycle: a large amount of conservative funds that pursue stable low volatility and fixed high returns flow into the high volatility and non fixed income Bitcoin track through STRC, resulting in a serious mismatch between fund risk attributes and asset attributes. The concentrated outflow of such misaligned leveraged funds is a necessary process for the market to bottom out.

This trend is highly similar to the GBTC premium market of the 2019-2021 bull market. In the previous bull market, GBTC had a significant long-term premium, and institutions used lock up arbitrage to generate massive leveraged funds entering the market; At the end of the cycle, the premium returns to zero and arbitrage leverage is concentrated and cleared, leading the market to explore the bottom of the bear market. History is repeating itself in this round of market.

7、 The bottom signal is clear, and it is expected to start a new bull market this autumn

Accurately predicting the bottom point and time cannot be achieved, but there are multiple signals of bottoming out in the current market. Investors can focus on tracking three core indicators:

Firstly, the MSTR stock price has fallen below its net asset value per share, indicating a shift in market sentiment from extreme greed to extreme panic, which is a core signal of market valuation bottoming out;

Secondly, the Crypto Fear Greed Index has reached a historical extreme and entered the extreme fear zone, corresponding to the bottom of market sentiment;

Thirdly, the funding rate for Bitcoin derivatives remains negative, leading to a concentrated release of short selling sentiment in the market and a gradual depletion of bearish momentum.

Based on comprehensive analysis, the current market is in the final stage of risk clearing and leverage washing, and the pains of cyclical adjustment are inevitable. As various risks continue to be digested, the bottom of the market is within reach, and the cryptocurrency market is expected to start a new bull market in the autumn of 2026.