Strategy’s STRC Dips to Record Low, 26% Under $100 During Spike Selloff, Funding Issues Resurface Post-Bitcoin Slump
STRC, MSTR continue Declining Following Bitcoin Selloff
On Thursday, Strategy’s STRC perpetual preferred stock plummeted, trading 26% under par, with the preferred stock trading at record low levels dropping to around $74, before closing at $77.50. During the same time, Strategy’s common shares (MSTR) traded sharply lower closing below $87, with MSTR closing at record low levels since February 2024.
Sharp selling across the preferred stock and common stock levels was occurring at the same time as Bitcoin was trading lower and crossing below the $58,000 (post 2024) benchmark, marking the lowest levels since the previous selloff that occurred in October 2024.
Market conditions were becoming volatile with increased activity ahead of the quarterly options expiration, with significant uncertainty for market participants due to the approximate $10.6 billion options expiring.
Funding Structure Issues Are of More Concern than Bitcoin for Investors
For a long time the market viewed Strategy as primarily a Bitcoin investment vehicle with Strategy’s stock closely mirroring the performance of Bitcoin. Following the crypto bear market of 2021-2022, the share price of MSTR increased over 450% and numerous critics of Strategy became silent.
Current market sentiment is focused on concerns relating to the funding structure, in addition to the price of Bitcoin. Continuous funding to acquire additional Bitcoin is supported by the financing structure and preferred securities such as STRC.
In contrast to common stock, preferred shares have fixed financial obligations. STRC has cumulative dividend obligations of 11.5%; thus, STRC has cash flow obligations every year regardless of changing market conditions.
Increased Obligations Concern Stakeholders
Over the past few weeks, concerns over Strategy’s financial flexibility have increased. On-chain analytics platform CryptoQuant stated the company’s preferred shares cumulative dividend obligations are approximately $1.2 billion a year, while cash reserves are estimated to be $1.4 billion.
As these numbers become clearer, analysts and investors are left wondering if Strategy can continue its aggressive acquisition of Bitcoin while fulfilling its dividend obligations and its other debt obligations. With the challenging market conditions, Strategy’s failure to maintain liquidity has become of the utmost importance.
Liquidity Concerns Prompt Analysts to Make Suggestions
Many in the industry think Strategy has to adopt a more conservative approach. Matt Walsh, a General Partner at Castle Island Ventures, said that convertible debt obligations are much more of a concern for the immediate future than preferred obligations.
According to Walsh, the current situation is mostly about timing and access to capital markets as opposed to coverage of assets. Because of this, Strategy should focus on cash management to stabilize liquidity, then refinance or buy back convertible notes, and stop buying Bitcoin. This would help prevent the company from being forced to sell Bitcoin in a down market.
Divergent Perspectives of Market Participants
The circumstances have negatively impacted related stocks, including Strive’s perpetual preferred stock SAT, which has reached an all-time low at around $84. This pessimism has informed many market participants, but there are a few who oppose this outlook.
More recently, equities research firm Benchmark has reiterated its Buy rating at a price target of $570 for Strategy. Benchmark analysts explained that the more recent declines in MSTR and STRC represent more of a stress test for the company’s funding model, rather than a more systemic problem.
Further, Benchmark reiterated that STRC was purposely designed with a variable dividend feature and was designed to not trade as a fixed security, even if the company aims to have STRC trade close to the $100 par value.
Given that Bitcoin is still in a bear cycle, market participants are going to be more interested in Strategy’s liquidity position and how the company is able to manage its dividends and debt in the near future.
