Strategy STRC, $100 collapse... "Loss of Bitcoin's largest buyer status is a matter of time"

▲ Strategy, STRC, Bitcoin (BTC)/AI generated image

The STRC situation at Strategy is shaking its existing status as the largest buyer in the Bitcoin (BTC) market, signaling a change in the supply and demand structure for the next bull market.

According to cryptocurrency media outlet Cointelegraph on July 3 (local time), Matt Hougan, Chief Investment Officer at Bitwise, diagnosed that it would be difficult for Strategy to remain a key driver of Bitcoin demand as it was in the previous cycle. Hougan stated, "For many years, Strategy was the world's most dominant Bitcoin buyer and a unilateral source of Bitcoin demand. It is highly likely that those days are over."

Hougan believes that in the next cycle, investment banks, asset management firms, pension funds, university endowments, and sovereign wealth funds are likely to become the main drivers of Bitcoin demand, replacing Strategy. He explained that Strategy might remain a net buyer in the next bull market, but it would not be as significant as it was in the last cycle.

The starting point of the controversy was Strategy's perpetual preferred stock product, Stretch (STRC). STRC plummeted from its par value of $100 to below $75 at the end of last month, raising concerns about the sustainability of its dividend model. At the same time, Bitcoin fell to $58,190 on June 25, marking a 21-month low, and market confidence in Strategy's Bitcoin acquisition strategy also wavered.

Strategy stated that it could sell Bitcoin to secure dividend funds when needed and also expanded its dollar reserves to $2.55 billion. Hougan assessed that while these measures reduced short-term concerns, they simultaneously weakened Strategy's position as the industry's most aggressive Bitcoin buyer. He described the STRC incident as "typical late-cycle dynamics" and viewed it as a case of financial engineering failure similar to the collapse of the Grayscale GBTC premium in 2021.

Hougan said, "Funds seeking high returns and low volatility were used to buy Bitcoin, but Bitcoin offers neither of these." He added, "These funds were not suitable for Bitcoin in the first place. They need to be cleared out before finding a bottom, and that is happening now." In contrast, Matt Cole, CEO of Strive, countered that Strategy's STRC issue was excessively highlighted by the media and dragged down Bitcoin's price more than necessary.

Cole explained that the 847,363 BTC held by Strategy accounts for 4% of the total supply, and according to the U.S. Securities and Exchange Commission (SEC) standards, a significant stake starts from 5%. Hougan also believed that Strategy was not facing liquidity risk. He stated that Strategy holds $52 billion in liquid assets against $7 billion in debt, and the company would only be at risk if Bitcoin fell an additional 70% to approximately $18,500. He added that even if Strategy were to sell Bitcoin now, it could cover the dividends for STRC and other perpetual preferred stocks for the next 28 years.

[Article Key Summary]

-Matt Hougan of Bitwise assessed that Strategy is unlikely to be as significant a buying entity in the next Bitcoin cycle as it was in the past.

-STRC plummeted from its par value of $100 to below $75, raising doubts about Strategy's dividend model and Bitcoin acquisition strategy.

-Hougan viewed Strategy's liquidity risk as limited but analyzed that future Bitcoin demand is likely to be diversified among investment banks, asset management firms, pension funds, sovereign wealth funds, and others.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*