Strategy's preferred stock, STRC, aimed at income-oriented investors, is undergoing its most significant stress test since its listing. The product, which attracted many individual investors to allocate their savings funds by highlighting high dividends and direct purchase through brokerage accounts, has recently seen its price fall below its designed trading range of around $100, leading to a rapid increase in market divergence.
STRC falls to its lowest level since listing.
According to Yahoo Finance data cited in the article, STRC fell to $82.53 this week, its lowest level since its listing last July. Previously, this preferred stock had traded above its par value of $100 on multiple occasions, allowing Strategy to continue raising funds through share issuance.
Currently, STRC offers an annualized return of approximately 11.5%. Michael Saylor, co-founder and executive chairman of Strategy, has likened it to a money market fund and a bank account covered by FDIC, a comparison that has helped attract a large number of investors who prefer stable cash flow.
Retail investor holdings diverge more sharply
The report revealed a clear divide among investors interviewed. Some saw the price pullback as an opportunity to add to their positions, while others, after suffering significant paper losses, began to reassess the risks.
A 44-year-old Las Vegas investor said he bought in on the product's launch day and has since accumulated over $400,000 in STRC and another similar preferred stock, SATA, with plans to hold them long-term. He believes STRC's bi-weekly distribution mechanism is suitable for income-generating portfolios.
However, another California IT professional stated that he has accumulated approximately $425,000 worth of STRC since May, and currently has a paper loss of about $42,000. He said he had sold bonds to invest in STRC, but is now more focused on Strategy's cash reserves and debt management, as a lower cash buffer could force the company to sell Bitcoin.
Dividend-paying ability is linked to Bitcoin price.
Some industry insiders believe that the main risks of STRCs have not been fully understood by all retail investors. Glenn Cameron, head of institutional business at Onramp Bitcoin, said that these products are highly dependent on Bitcoin prices, and if Bitcoin experiences a significant drop, investors may face both asset devaluation and income interruption.
He pointed out that STRC has no deposit insurance coverage and is linked to a company with insufficient cash flow. Furthermore, if the company suspends dividend payments, it has no obligation to compensate investors for their losses. Strategy also disclosed in its prospectus that STRC's price and liquidity are affected by market fluctuations, interest rate changes, the immaturity of the trading market, and its lower priority in debt repayment compared to the company's debt.
Strategy uses this opportunity to further expand its Bitcoin holdings.
For Strategy, STRC is not just a yield product, but also a new financing channel to continue expanding its Bitcoin reserves. Since the product's launch, the company has issued over $10 billion worth of related shares and increased its Bitcoin holdings to 846,842 coins, worth approximately $53 billion according to the article.
However, continued dividend payments also incur recurring costs for the company. To bolster investor confidence, Strategy previously built up cash reserves and sold 32 bitcoins last month to demonstrate its willingness to cover STRC's ongoing payment costs by adjusting its holdings. The company described this move as a prudent capital management decision, but it still triggered a sensitive market reaction and dragged down its stock price, resulting in its worst weekly performance since November 2022.
Michael Saylor stated at a Bitcoin conference in April that approximately 80% of STRC is held by retail investors, and the company estimates that around 3 million households have related exposure. With the price of STRC remaining below $100, this high-yield product aimed at ordinary savers is facing more direct market scrutiny.
