After Bitcoin fell below $63,000, Strategy's preferred stock, STRC, also weakened, hitting a new low since its listing. Market attention has shifted to whether this type of financing instrument can still support the company's continued Bitcoin accumulation as originally planned.
STRC falls below par value
STRC stands for Strategy Variable Rate Series A Perpetual Preferred Stock. The product briefly fell to around $82 on Thursday before trading near $85.
Based on a face value of $100, STRC is now trading at a discount of approximately 15%, and is also below its initial offering price of $90. During the same period, Bitcoin fell by approximately 3.77% in 24 hours, dropping to $62,603.95, breaching the $65,000 and $64,000 levels.
Following the pullback in Bitcoin, crypto-related stocks and related preferred securities generally came under pressure. The decline in STRC was therefore seen as a direct reaction to weakening market risk appetite.
Widening discounts draw attention to financing.
STRC's design goal is to keep the trading price as close as possible to its $100 par value by adjusting the dividend yield monthly. Strategy's website shows that the annualized dividend yield for this preferred stock in June was 11.5%.
Based on a price around $85, STRC's effective yield has risen to approximately 13.5%. This means that if the company hopes to attract more buying and push the price back to near par value, it may need to further increase the dividend yield.
However, a higher dividend yield will also increase Strategy's ongoing cash outflows. The company did not sell STRC ATMs in the week ending June 7, but still has approximately $17.51 billion in remaining offering space available. If the market continues to price STRC at a discount, its efficiency as a financing tool will be further tested.
Market opinions differ on the reasons for the decline.
Peter Schiff, a longtime critic of Bitcoin, used this opportunity to question Strategy's funding model again, saying that investors who bought STRC at close to $100 have suffered significant losses and that the company may have to increase yields to support the price.
However, some market participants believe that this decline is more like a chain reaction triggered by leveraged liquidation. Jesse Myers stated that the STRC had previously been fluctuating narrowly around $99 to $100 for a long time, and some investors may have used leverage during this period. After the price broke below this level, margin calls and forced selling could amplify the decline.
David Bailey also mentioned that Strive's SATA preferred stock and STRC both have Bitcoin-backed capital structures. SATA also fell below par value that day, trading at approximately $96.93, but the decline was significantly smaller than that of STRC.
The company's cash reserves can still cover expenditures.
Strategy previously stated that its Bitcoin reserves only need to appreciate by about 3.1% annually to cover the associated preferred stock dividend burden. Supporters argue that this provides the company with a buffer even with significant fluctuations in preferred stock prices.
The company also recently disclosed that it sold 32 bitcoins between May 26 and May 31, at an average price of $77,135, raising approximately $2.5 million. The company stated that these funds are expected to be used to pay preferred stock dividends. This move has attracted market attention for Strategy, a company known for its long-term holding of bitcoins.
As of June 14, Strategy disclosed that its dollar reserves were approximately $1.1 billion, including proceeds from unsettled ATM financing. These reserves are primarily used to pay preferred stock dividends and debt interest. The company also cautioned that it may need to sell more Bitcoin if its cash reserves are depleted and external financing becomes limited.
