Earlier this week, Strategy unveiled a capital framework that allows the selective sale of bitcoin to fund preferred dividends, while also allowing preferred stock buybacks and share buybacks. It also set a minimum reserve covering 12 months of preferred dividend and interest payments. Its $2.55 billion cash holdings currently cover about 17 months.
Hougan said the episode marks a broader shift in the role of strategy in bitcoin markets. Instead of acting as crypto’s dominant one-way buyer, the firm is likely to become a more flexible participant whose bitcoin buy or sell depends on market conditions.
Looking ahead, Bitwise believes that institutional investors, including asset managers, banks, pensions, endowments and sovereign wealth funds, are positioned to replace Strategy as bitcoin’s primary source of demand.
More generally, STRC volatility is seen as part of the leverage unwind that typically marks the late stages of each crypto cycle. As speculative profits are flushed out of the system, the market is moving closer to establishing a durable bottom, although the exact timing remains impossible to predict, the report added.
Wall Street bank JPMorgan said Strategy’s new policy of allowing selective bitcoin sales to fund preferred dividends creates avoidable two-way risk, increasing uncertainty and market volatility.
Read more: JPMorgan says Strategy’s bitcoin selling policy adds ‘two-way risk’ to crypto markets
