Last week, we noted Bitcoin’s TradFi bid was losing steam and cautioned against longs as MicroStrategy’s buying spree peaked in the short-term. That prediction played out. Strategy temporarily paused its aggressive Bitcoin accumulation as its most popular preferred shares (STRC) dipped below par after the ex-dividend date, with Bitcoin breaking below $70,000.
Gold has suffered a historic meltdown and failed as a geopolitical hedge. The TradFi bid for Bitcoin has faltered, with harsh reversals back to ETF outflows and broader stock market slumps also being observed.. However, despite these negative factors, Bitcoin is holding up surprisingly well against the rest of the market.
Here’s why we remain cautious on directional longs, but see a unique long-short trade opportunity.
STRC Mechanics and Capital Deployment
Our thesis last week centred on the mechanical pricing of Strategy’s Variable Rate Series A Perpetual Stretch Preferred Stock (STRC). The company relies on issuing STRC to fund its Bitcoin purchases without diluting common equity. STRC functions as a high-yield instrument that currently pays an 11.50% annualised dividend, leading to income investors typically bidding it up.
However, 13 March was the ex-dividend date. The stock began trading without the right to the upcoming monthly payout, causing STRC to drop below its $100 par value. The Strategy ATM model requires STRC to trade at or above par to raise capital efficiently. The sub-$100 price forced the company to halt its Bitcoin acquisitions.
The impact was immediate. Between 16 March and 23 March, Strategy purchased just 1,031 BTC. This is a massive deceleration from the 22,337 BTC accumulated the prior week. Monitoring the STRC premium to par serves as a practical metric for observing the near-term purchasing capacity of Strategy. Historical data indicates that dips below the $100 par value correlate with pauses in the company’s Bitcoin acquisitions, which occurred again during this recent ex-dividend period.
ETF Outflows Return Amid Equity Market Slump
While the MSTR capital deployment temporarily dried up, the broader trad-fi market also pulled back. Contrary to earlier optimism, US spot Bitcoin ETFs sharply reversed course and returned to a streak of net outflows last week. This withdrawal of liquidity coincided directly with a broader stock market drop, with the S&P 500 falling 1.9%, breaching its 200-day moving average, while the Nasdaq 100 declined by 2.0%.
Daily flow data shows ETFs bled capital for three consecutive days late last week. Outflows hit $163.5 million on 18 March, $90.2 million on 19 March, and $52.0 million on 20 March,invalidating the notion of a sustained inflow streak and highlighting that institutional demand remains vulnerable to macro risk-off events.
Relative Strength: Bitcoin Outperforms Gold and Equities
A dramatic shift occurred this week in traditional safe-haven markets. Despite escalating geopolitical tensions in the Middle East involving Iran, traditional safe haven assets and equities suffered. Gold (XAU) plunged over 15% from its March highs. The metal experienced its worst single-day drop since the 1980s, evaporating roughly $3 trillion in market value. Stubborn inflation and high oil prices triggered a hawkish Federal Reserve stance, causing paper traders to violently flush their gold positions.
Instead of acting as a geopolitical hedge, gold faced severe liquidation. In stark contrast, Bitcoin showed remarkable relative resilience against both precious metals and the stock market. While the Nasdaq 100 and gold flushed lower, Bitcoin maintained its ground and stabilised above $70,000. This divergence suggests that amid the Iran uncertainties, Bitcoin is currently demonstrating superior structural support compared to legacy assets.
Trade Idea: Long Bitcoin, Short NASDAQ 100
The traditional finance bid is currently subdued, and ETF flows have turned negative amid a stumbling stock market. However, a distinct relative value opportunity emerges when observing the resilience of Bitcoin compared to the broader technology sector.
We suggest a pair trade: short QQQ, and long BTC. The rationale for shorting the NASDAQ index is driven by significant structural deterioration and capital rotation away from mega-cap technology stocks.
The tech sector is currently facing severe selling pressure due to AI anxiety and margin concerns. Sky-high market expectations are colliding with sustainability fears. While the NASDAQ faces these fundamental headwinds and weakening technical structures, Bitcoin has maintained its positioning. Until Strategy can consistently issue STRC above par to deploy its new $44.1 billion capital authorisation, longing BTC against a short QQQ position effectively captures the ongoing capital rotation out of traditional tech vulnerabilities and into decentralised assets.