Are MicroStrategy's concerns exaggerated?...Bitwise "Bitcoin bottom is near"

▲ MicroStrategy (MSTR), Bitcoin (BTC)/AI Generated Image ©

While the volatility of MicroStrategy's (Strategy) preferred stock STRC is increasing, spreading market anxiety, an analysis suggests that it could actually be a signal marking the final adjustment phase of the Bitcoin (BTC) cycle. Bitwise stated that there are no major issues with MicroStrategy's financial health and predicted that the Bitcoin bull market would resume this fall once the current correction concludes.

According to investment media FXStreet on July 2 (local time), Matt Hougan, Chief Investment Officer (CIO) at Bitwise, assessed the recent sharp drop in STRC and MicroStrategy's stock price not as a systemic risk for the overall Bitcoin market, but as a "typical deleveraging process in the late stage of a cycle." He diagnosed that "STRC volatility is a natural and important part of the crypto cycle, and the market is nearing its bottom."

STRC is a perpetual preferred stock designed to offer a high dividend yield while keeping its price around its par value of $100. MicroStrategy had been purchasing additional Bitcoin with funds raised based on investor demand, but the recent weakness in Bitcoin and MSTR stock prices has heightened concerns about dividend sustainability, causing STRC's price to drop to $75. In response, the company announced new operational plans, including selling Bitcoin if necessary to fund dividends and buying back STRC in the open market.

Matt Hougan evaluated these measures as an inevitable choice while drawing a clear line, stating that the 'forced liquidation rumors' raised by some in the market are far from the truth. He explained that MicroStrategy currently holds approximately $49.6 billion worth of Bitcoin and $2.6 billion in cash, while its debt amounts to only about $6.8 billion. He also analyzed that the company has sufficient financial flexibility, as preferred stock dividends can be suspended if necessary, and that the company would only face real risk if Bitcoin were to plummet by over 70% and remain at that level for several years.

Hougan also predicted that the core of Bitcoin demand would shift in the future. He stated that MicroStrategy would gradually hand over its role as the largest corporate buyer to institutional investors, expecting large institutions such as banks, asset managers, pension funds, sovereign wealth funds, and financial advisors to drive future Bitcoin demand. He also explained that increased institutional participation, such as Morgan Stanley's offering of Bitcoin spot ETFs and Wells Fargo's inclusion in model portfolios, supports this trend.

Hougan assessed the current correction phase as similar to a typical cycle where the market rebalances after excessive optimism and expanded leverage. He stated that the market bottom is approaching and expressed his expectation that the Bitcoin bull market would restart this fall, supported by continued institutional participation.

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