STRC, MSTR, and End-of-Cycle Dynamics

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

Bitcoin dipped below $60,000 last week, hitting its lowest level since 2024. There were many reasons for the pullback, but by far the biggest was STRC, the perpetual preferred equity instrument issued by Strategy (MSTR).

I’ve received a lot of questions from clients about STRC and MSTR. Given how much they reveal about where we are in the current cycle, I thought I’d answer them here.

What is STRC?

STRC is a preferred equity instrument that Strategy introduced last year. It was designed to provide investors with a high yield while trading at or near its “par value” of $100/share.

When it launched, STRC paid a 9% yield. To maintain the targeted $100 share price, Strategy said it would boost STRC’s yield by 0.25%-0.50% if the price drifted below $100. The higher yield would attract buyers, it figured, which would bring the price back towards $100.

For a while, this worked: Strategy gradually raised the interest rate to 11.5% and STRC’s share price hovered near $100. It felt like magic—high yield with no risk!—and investors ate it up, pouring $10.5 billion into STRC. Strategy used the proceeds to buy bitcoin.

What happened?

Over the last few weeks, as the price of both bitcoin and MSTR stock drifted lower, investors started to worry about Strategy’s ability and willingness to pay STRC’s dividend. The price broke sharply from its $100/share price, trading down to $75.

Were investors right to worry?

Yes and no.

Big picture, Strategy looks good for the money. The firm has $49.6 billion in bitcoin and $2.6 billion in cash, against $6.8 billion in debt and $15.5 billion in preferred equity. If it sold its bitcoin today, it could pay all the dividends it owes for 28 years.

The big question was: Would it? Strategy can suspend the dividend payment on STRC at its discretion. While those dividends still accumulate, there is no mechanism to force Strategy to pay them right now. With bitcoin’s price falling, and concerns mounting about where it would get the cash to pay those dividends, investors worried it would pull the plug.

Did they?

No.

On Monday, Strategy announced a new “framework” under which it can periodically sell bitcoin to fund its dividend obligations. It said it would no longer automatically increase interest rates to defend the $100 share price, instead letting STRC trade at a variable price. It also said it may purchase STRC in the open market.

The announcement helped: Both MSTR and STRC’s share price rose sharply on Monday.

Why didn’t Strategy just raise STRC’s interest rate?

Because it would have meant raising it to alarming levels. 

Strategy’s original plan called for small rate adjustments to help maintain STRC’s $100 price. But with STRC trading at $75, it was paying an “effective yield” of 15.4%, meaning Strategy would have had to boost the nominal yield nearly 4% (from 11.5% to 15.4%) if it wanted to restore par.

Even that might not have worked. Boosting the yield that much could have spooked the market, causing investors to worry about where Strategy would get the money to pay the higher yield, sending prices lower.

At $75, STRC’s $100 “par value” was too far gone to save in the short-term.

Will STRC return to $100/share under the new framework?

Not necessarily. Strategy will no longer attempt to algorithmically maintain a $100 share price. While it lifted the official interest rate to 12%, it seems unlikely that STRC will trade back to $100 until we see bitcoin’s price move significantly higher.

What does all of this mean?

People have different views on this, but I think Strategy’s role in the bitcoin market has changed.

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. Going forward, Strategy could buy or sell bitcoin depending on market conditions.

Importantly, I don’t think it will be a large seller. There’s no mechanism that will force Strategy to sell more than a few billion dollars of bitcoin a year. And if bitcoin’s price rallies, I think it’s likely it will be a net buyer.

I just expect it to be a less important figure in bitcoin in the next cycle than it was in the last.

Who will replace Strategy as the biggest buyer of bitcoin?

I think it will be institutions.

Throughout bitcoin’s history, we’ve seen market leadership rotate through different types of buyers: from cypherpunks to Asian investors to U.S. retail to GBTC to MSTR. The candidate I’d most expect to lead us into the next phase is the institutional investor—think global banks, asset managers, pensions, endowments, sovereign wealth funds, and financial advisors, who collectively manage the largest pool of capital in the world.

There are indications this is already happening: Morgan Stanley recently launched proprietary bitcoin ETFs, Wells Fargo is putting bitcoin into model portfolios, and so on. Last year, Texas became the first U.S. state to fund a strategic bitcoin reserve. Multiple sovereign wealth funds and sovereign banks either already hold bitcoin or have announced study programs. And while bitcoin ETFs have seen outflows in 2026, they’ve attracted more than $50 billion since their 2024 launch, and are now approved on most major financial advisor platforms.

Is Strategy facing any sort of liquidation risk?

Not from what I’m seeing. The liquidation conspiracy theories seem to defy math. As I mentioned, the firm has $52 billion in liquid assets against $7 billion of debt. Bitcoin would have to trade down massively (70%+?) and stay there for multiple years to put the company at risk.

Critics point to the company’s $15 billion preferred equity commitments as an overhang, but as I mentioned, in an extreme scenario Strategy can suspend dividend payments on preferred equity. 

What does all this say about the market?

The volatility in STRC and the pullback in MSTR’s stock price are classic end-of-cycle dynamics. Every market cycle—crypto or otherwise—follows a similar pattern: First, there is a bull market. Then, investors get greedy and pile on leverage, often with financial engineering involved. Then something breaks and the process reverses. You find a bottom when all the excess leverage is squeezed out of the system.

STRC is a classic example. Consider how it worked: Investors searching for high yields and low volatility gave their money to Strategy, which used that money to buy bitcoin. In other words, money searching for high yields and low volatility was used to buy bitcoin, which offers neither.

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. 

For what it’s worth, we’ve seen this before in crypto. During the 2019-2021 bull market, GBTC traded at a fat premium to the bitcoin it held. Institutional investors could create GBTC at fair value, wait six months, and sell into the market at premiums that often hovered in the 20%-50% range. This pulled a huge amount of money into bitcoin, and ultimately led to all sorts of crazy financial engineering. Both the GBTC premium and the financial engineering had to be unwound beginning in 2021. It did, and eventually we found a bottom.

I suspect that will happen again here.

When will the bottom arrive?

I wish I could tell you. The truth is, no one knows. Market bottoms are only obvious in hindsight.

But there are a few signs that I’d watch for in the near future. One would be MSTR trading at a discount to its net asset value. That would be a sure signal that greed has fully transformed into fear, a ripe condition for a market bottom. Another signal worth watching is the Crypto Fear and Greed Index; I get bullish as it heads towards all-time lows (i.e., extreme fear). Another would be leverage funding rates turning decidedly negative, indicating more retail interest in shorting bitcoin than going long. In other words, you want it to be so bad it’s good.

We’re moving along that journey, and the issues with STRC are part and parcel of the process. This is a painful but necessary part of the current crypto market cycle, as it is with all cycles.

As the market continues to sort things out, I’m convinced the bottom is closer than ever—and that we will enter a new bull market in the fall.

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