Bitwise Says Strategy Now Less Important Figure in Bitcoin

Bitwise’s Matt Hougan said Strategy's STRC offer of high yields and low volatility was always a questionable fit for buying Bitcoin, as the cryptocurrency offers neither.

Strategy’s era as the dominant Bitcoin buyer may have come to an end following last week’s STRC turmoil, which cast doubt on the company’s Bitcoin-buying strategy and sent the cryptocurrency to a nearly two-year low, according to Bitwise chief investment officer Matt Hougan.

“For years, Strategy has been the most dominant Bitcoin buyer in the world and a one-way source of Bitcoin demand. Those days are likely over,” Hougan said Thursday.

“I just expect it to be a less important figure in Bitcoin in the next cycle than it was in the last,” Hougan said, adding that investment banks, asset managers, pensions, endowments and sovereign wealth funds will likely replace Strategy as Bitcoin’s primary demand driver.

Confidence in Strategy’s Bitcoin-buying model weakened late last month when its main perpetual preferred stock offering — Stretch (STRC) — broke sharply from its $100 par value to below $75, raising fears that its dividend model was unsustainable.

The STRC incident coincided with Bitcoin (BTC) falling to a 21-month low of $58,190 on June 25, further rattling confidence across the crypto market.

Strategy responded by committing to sell Bitcoin where necessary to fund dividends and by expanding its US dollar reserve to $2.55 billion — easing immediate concerns but weakening its position as the industry’s most aggressive Bitcoin buyer, Hougan said.

Hougan said he still expects Strategy to be a “net buyer” in the next bull run, however.

Bitwise portfolio manager Gordon Grant (left) speaks with Hougan (right) about Strategy’s future outlook with STRC. Source: Bitwise

Hougan described the STRC incident as “classic end-of-cycle dynamics” and likened its collapse to a similar case of “financial engineering” in 2021, when Grayscale’s GBTC premium imploded.

“Money searching for high yields and low volatility was used to buy Bitcoin, which offers neither,” Hougan said. “This money never really fit Bitcoin. And so, it needs to be cleared out before we can find a bottom. That's what's happening today.”

Strive CEO Matt Cole, however, said Strategy’s incident with STRC has drawn too much media attention and pushed down Bitcoin’s price more than it should have.

Related: Bitcoin doesn't need Ethereum-style yield, says Strategy's Michael Saylor

Speaking with NovaDius Wealth Management president Nate Geraci on Thursday, Cole noted that Strategy's 847,363 Bitcoin represents just 4% of the total supply, and while Bitcoin isn’t a public company, by the US Securities and Exchange Commission’s standards, a 4% stake wouldn't be considered material.

Despite concern over STRC, Hougan said Strategy has $52 billion worth of liquid assets marked against $7 billion of debt, and that Bitcoin would need to drop another 70% (about $18,500) for the company to be put at risk.

Hougan also noted that if Strategy were to start selling its Bitcoin today, it could cover dividends from STRC and its other perpetual preferred stock offerings for the next 28 years.

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