Strategy (MSTR), the leading corporate holder of bitcoin, has described the launch of its Perpetual Stretch Preferred Stock (STRC) as the firm’s “iPhone moment,” and despite its support in BTC accumulation, risks remain.
Before digging into these risks, it’s worth noting that while the focus is on STRC, specifically over its greater liquidity and adoption, they also apply to similar preferred offerings, including another bitcoin treasury company, Strive’s preferred offering, SATA.
These instruments are “not well understood through the lens of traditional credit or equity,” and instead require a different analytical framework, NYDIG global head of research Greg Cipolaro said in a note.
By design, STRC targets a stable share price of $100, using a variable monthly dividend to keep trading close to this level. The approach has already supported the issuance of several billion dollars and the acquisition of more than 50,000 bitcoins, according to STRC.live data.
At its core, STRC works by adjusting the yield to control the price. If shares trade above $100, the company may trim the dividend to cool demand. If shares fall below that level, it may raise dividends to attract buyers. By keeping the price anchored, the firm issues new shares close to par, bringing in capital that is then used to buy bitcoin.
The new financial instrument has so far been a success. Not only has it allowed Strategy to buy more than $3.5 billion worth of bitcoin, but it has also attracted institutions that have added STRC to their balance sheets.
In practice, the product looks like a money market fund with a floating return of 11.5%, well above US Treasuries. The appeal depends on the stable price of $100 combined with high yields.
When conditions are favorable, NYDIG’s Cipolaro wrote, the mechanism creates a powerful feedback loop. The loop where STRC trades close to par allows the firm to raise capital, use the proceeds to buy more bitcoin, expand the asset base and maintain investor confidence. This trust sustains further issuance.
“As long as preferreds remain anchored near par, stocks trade above NAV, and capital markets remain open, the flywheel drives ongoing bitcoin demand,” Cipolaro wrote in the note.
Still, all is not rosy.
BitMEX Research has written in a note titled “A bit of Stretch” that it sees the risks associated with the product as “significantly greater than those related to short-dated US Treasuries.”
Where the risks actually lie
Bullish investors often point out that STRC is well-capitalized and can easily cover dividend payments, given Strategy’s massive 761,068 BTC war chest and more than $2.2 billion in cash reserves. That’s about 50 years of covered dividend payments, while the company can still lower STRC’s dividend over time to promote coverage. On top of that, there are monetization opportunities for the company’s massive bitcoin hoard, which could further dividend payments.
However, the risks are not based on dividend coverage at all, according to NYDIG’s Cipolaro.
“The appropriate way to assess risk in STRC and SATA is through the lens of governance and subordination rather than focusing solely on payment risk,” he wrote.
The mechanism used by STRC also creates a stress path. If bitcoin falls and confidence in Strategy’s balance sheet weakens, STRC could slip below par.
To defend the price, the company must raise the dividend. Higher payouts increase cash liabilities, which in turn can worry investors and push the price lower. This feedback loop is well known in the credit markets.
In a standard corporate setting, this cycle can end in forced asset sales. Companies may have to sell core holdings to meet rising liabilities, locking in losses at the worst time. For Strategy, that would mean selling BTC into a falling market. However, Strategy’s Michael Saylor has repeatedly said he will not sell the company’s bitcoin stack.
However, the STRC terms give the company another option. The target price is not a binding promise. If conditions reverse, the Strategy may reduce the dividend instead of increasing it.
According to BitMEX Research’s reading of the SEC filings related to STRC, the Strategy “may, at its discretion, lower the dividend rate by up to 25 bps per month, regardless of what else happens.”
In addition, unpaid dividends can accumulate without triggering default or forcing the sale of assets. As BitMEX Research put it, instruments like these were “written by the company for the company.”
Read more: The strategy’s recent massive bitcoin purchases provide insight into its evolving funding model
Built to bend, not break
This flexibility changes what would happen to the STRC in the event of a crisis.
Instead of a company caught in a bind, the pressure is shifting to the safety nets. If the dividend is reduced, the yield becomes less attractive and the market price may fall to reflect the new reality.
NYDIG’s Cipolaro made clear in his note that the structure “can remain solvent while still delivering suboptimal results for preferred holders due to the loss of confidence and access to financing.” The risk is not a default on its yield, but rather the loss of its attractiveness.
Strategy’s legacy software business does not cover these payments alone. The model depends on continued issuance or balance management tied to its bitcoin holdings.
The binding constraint is not income generation, but the combination of continued access to capital markets and adequate asset coverage,” NYDIG’s Cipolaro wrote. The setup invites comparisons with structures that rely on new inflows to support payouts.
The difference here is that payouts are not fixed. If demand slows, the firm may lower the dividend rather than maintain a rate it cannot sustain. This feature helps protect the issuer, but weakens the claim for investors seeking stability and income.
“When the music stops, if things get challenging for MSTR, instead of selling bitcoin, MSTR may just abandon the narrative that STRC is targeting stability,” BitMEX Research wrote. “This feels very favorable for MSTR and the dividend payments are therefore quite sustainable and affordable in our view.”
To break the mechanism
The market impact will depend on how long the $100 anchor holds.
As long as demand for yield products remains strong and bitcoin sentiment is supportive, STRC can continue to channel funds into the company’s financial strategy.
That, in turn, reinforces Strategy’s position as a major public holder of bitcoin. NYDIG has shown that bitcoin’s price stability is what enables the financial viability of issuing these products to the market.
STRC and Striv’s SATA have seen their prices fall below par during periods of sharp bitcoin price declines, the firm’s research found. When that happens, “issuance becomes uneconomic, limiting the ability to raise capital and slowing down the flywheel.”
The risk becomes apparent when conditions change. A prolonged decline in BTC’s price or a shift in rates can test the price mechanism. If the dividend is cut to preserve cash, STRC could be trading well below par. Losses would be borne by investors who treated the shares as a quasi-cash replacement.
“It’s similar to being short and hedging bitcoin assets, earning returns in exchange for bearing downside risk if bitcoin falls and erodes the asset cushion,” NYDIG offered as a framework for institutional investors. “Unlike a standard option, however, there is no fixed strike or term, and outcomes are path-dependent and shaped by management’s discretion.”
The broader meaning is the template itself.
STRC blends equity features with bond-like behavior and a built-in adjustment arm. It offers a new avenue for companies to raise capital tied to volatile assets without locking in fixed liabilities.
For now, these instruments have done their job: attracting capital and supporting further bitcoin accumulation. The open question is how it behaves under stress and who absorbs the costs when the trade no longer looks stable.
The interpretation of that scenario is not great, but not for MSTR, “it is the investors who may feel somewhat aggrieved when the music stops,” BitMEX concluded.
Read more: The strategy’s credit risk decreases as the preferred equity value exceeds convertible debt
