In brief
Strategy's preferred stock (STRC) tumbled to an all-time low of $82.53, dragging its common shares down along with it.
CoinShares’ James Butterfill said STRC’s weakness likely stems from uncertainty around how Strategy will manage fixed obligations.
Benchmark-StoneX’s Mark Palmer believes Strategy will hike STRC’s dividend rate to “support the price back toward par.”
Strategy’s flagship preferred stock faced notable pressure on Thursday, dipping to an all-time low as the Bitcoin-buying firm reaffirmed its commitment to paying Stretch (STRC) shareholders.As of this writing, STRC had fallen 2.6% to $87.45, according to Yahoo Finance. That marked a partial recovery from a low of $82.53 earlier in the day.Although the preferred stock hasn’t traded at its $100 par value since mid-May, the product’s performance is cyclical, with dips typically following STRC’s ex-dividend date.That is the cutoff day on which buyers of Strategy’s flagship preferred stock are no longer entitled to receive its upcoming distribution. At the end of the month, the company is expected to dole out roughly $100 million to investors alongside STRC’s next payout date.“STRC’s continued weakness appears to be driven less by Bitcoin itself and more by uncertainty around how Strategy intends to fund and manage its growing fixed obligations,” James Butterfill, head of research at CoinShares, told Decrypt. “A Bitcoin rebound improves the value of the assets supporting Strategy, but it does not automatically increase the cash available.”Last year, Strategy established cash reserves for the purpose of managing debt and dividends. The firm had set aside $2.25 billion at the beginning of this year, but after repurchasing a portion of its debt at a discount, the stockpile has been adjusted to $1.1 billion.STRC is engineered to trade around its $100 par value. When the preferred stock lingers below that threshold, Strategy has indicated that it can raise its dividend in an effort to stoke demand. The rate has been held steady around 11.5% for four straight months.For that reason, STRC’s weakness is mechanical and not a sign of distress, Benchmark-StoneX Managing Director and Senior Research Analyst Mark Palmer told Decrypt. When the product’s dividend rate sits below where the market is clearing, its price is meant to drift, he said.“That is the structure doing exactly what it was built to do,” he said. “At its current price level, we see STRC as offering investors an attractive total return opportunity, pairing a high current yield with a built-in mechanism that works to pull the price back toward par.”Benchmark-StoneX analysts expect Strategy to hike the dividend at the start of July, “and we expect that step to support the price back toward par,” Palmer added.As STRC fell, so did the company’s common shares. The company’s stock price fell as low as $109.36 on Thursday, its lowest point in four months. Over the past month, the company’s equity has tumbled 32%, outpacing a simultaneous decline in Bitcoin’s price.The downturn deepened last month after the Tysons Corner, Virginia-based firm decided to sell 32 Bitcoin for $2.5 million. The move, telegraphed in advance, was meant to convey its commitment by any means possible to paying the company’s preferred stockholders.“Until then, the core narrative was that Strategy issued capital to accumulate Bitcoin,” Butterfill noted. “Selling even a small amount to meet distributions reverses that flow and adds complexity to its overall strategy, albeit temporarily.”The liquidation raised questions about whether the world’s largest corporate holder of Bitcoin could pare its holdings in the future, and on Wednesday, Strategy communicated in an X post that its holdings could help maintain confidence in STRC for decades to come.“We have 32 years of dividend coverage through our BTC Reserve,” the company said, while comparing $55 billion in Bitcoin against $1.7 billion in annual dividends and interest expenses.Taproot Wizards CEO Udi Wertheimer was among those who noted on X that Strategy, if it tried to leverage its stash, would likely receive much less as the market absorbed the firm’s supply.On Thursday, Bitcoin fell below $62,500, a more than 5% decrease over the past day, according to CoinGecko. At that level, the value of Strategy’s stockpile of 846,842 BTC stood at about $53 billion. Yet, analysts see the pressure as a sign of growing pains rather than a fatal flaw.“I do not view this as existential at this stage,” Butterfill said. “It is a sign that Strategy’s financing model has become less efficient and that investors want a higher return for accepting the risk.”Daily Debrief NewsletterStart every day with the top news stories right now, plus original features, a podcast, videos and more.
