Bitcoin has risen more than 20% from its February lows, trading around $77,000. But market participants are questioning whether the rally can continue.

According to Bitwise Chief Investment Officer Matt Hougan, Strategy’s aggressive BTC purchases have emerged as the “single biggest factor” in the recent price surge.

Hidden Driver

While other factors, such as $3.8 billion in inflows into ETFs since March 1 and renewed accumulation by long-term holders, have supported Bitcoin’s price trajectory, Hougan explained that a significant portion of the recent gains has been driven by purchases from Strategy, which has added about $7.2 billion worth of Bitcoin over the past eight weeks.

These purchases have been funded through the issuance of STRC, a perpetual preferred equity instrument. STRC is a type of preferred stock, combining characteristics of both equity and debt, and is designed to trade at $100 per share while offering a high dividend yield, currently 11.5% annually.

“Strategy tries to maintain that share price by adjusting the yield up or down. If STRC trades below $100, Strategy can increase the interest rate to attract new buyers. If STRC trades above $100, Strategy can either issue more shares or lower the interest rate to drive prices back to $100.”

Since its launch, STRC has generally remained close to its target price, and the dividend rate was raised from an initial 9% to 11.5% to support demand. The primary purpose of issuing STRC is to raise capital for additional Bitcoin purchases, and most proceeds are deployed into the asset. The dividend payments are largely funded by raising capital from new investors, a structure Hougan said is supported by the company’s significant BTC holdings rather than being a Ponzi scheme.

Strategy’s Dividend Capacity

Strategy currently holds around $63 billion in Bitcoin against $8 billion in debt and $14 billion in preferred equity. In a liquidation scenario, debt holders would be paid first, followed by preferred shareholders. This leaves around $41 billion for common equity holders. At current Bitcoin prices, Hougan estimates the company could hypothetically sustain its dividend payments for 42 years, though this assumes no price appreciation during the period.

If Bitcoin were to grow at an annual rate of 20%, the company could continue paying dividends indefinitely. However, Strategy’s ability to meet its obligations depends on both Bitcoin’s performance and the scale of future STRC issuance, as higher issuance increases dividend liabilities and default risk, offset only by gains in BTC’s value. Hougan stated that investor confidence depends on Strategy maintaining a balance between raising capital and preserving balance sheet strength.

He also noted that demand for STRC appears strong and indicated that the company could have raised more capital in its most recent offering.

With junk bond yields below 7% and reduced interest in private credit, STRC’s 11.5% yield has been deemed “attractive.” Strategy’s current obligations amount to $21 billion, or about 33% of its Bitcoin holdings, a level which Hougan believes leaves room for an additional $10 billion to $15 billion in STRC issuance before investor concerns may increase, and further capacity is possible if Bitcoin prices rise.