Author | Azuma, Odaily Planet Daily
Strategy's preferred stock, STRC, is experiencing sustained "unpegging."
U.S. stock market data shows that since May 15th, STRC has gradually deviated from its target par value of $100. Recently, the discount has intensified significantly, hitting a low of $83.26 during Thursday's session and closing at $88.59, representing an unpegging of over 11% from the target par value.
For an ordinary stock, an 11% decline might not be a big deal. But for STRC, its persistent deviation from the $100 target par value signals a severe challenge to the product's core design objective.
This is because, in Strategy's original design, STRC was created as an income-oriented security intended to trade around a $100 par value, not a highly volatile speculative asset. The widening gap between market price and target par value is leading more investors to re-examine the logic behind this product.
More importantly, as Strategy continues to expand its Bitcoin reserves, STRC has gradually grown into the company's most crucial financing channel. In a sense, the market pricing of STRC reflects not only investor sentiment towards a preferred stock but also market confidence in Strategy's entire capital operation model.
STRC: The Engine of Strategy's Capital Flywheel
To understand the severity of this unpegging, we must first clarify STRC's product structure and its unique anchoring mechanism.
STRC is an innovative financial derivative instrument launched by Strategy in 2025. Unlike Strategy's common stock, MSTR, STRC is positioned as a perpetual preferred stock with a fixed target par value ($100) and relatively stable dividend income, resembling a fixed-income security.
- Odaily Note: Strategy founder Michael Saylor recently revealed that STRC was designed with the assistance of AI.
Within Strategy's balance sheet expansion cycle, STRC is not just an ordinary financing tool but the most powerful engine of its current capital flywheel.
Before STRC, Strategy primarily relied on issuing convertible notes and direct common stock offerings to raise funds for Bitcoin purchases. However, both models had limitations—convertible notes were constrained by maturity dates and debt leverage caps, while frequent common stock offerings diluted existing shareholders' equity.
STRC's emergence perfectly addressed this pain point. Its core utility in Strategy's strategy is primarily manifested in two dimensions:
- Unlimited "At-the-Market" (ATM) Offering Program: As long as STRC's market price remains at or above $100, Strategy can continuously issue new STRC shares in the secondary market through the ATM mechanism, raising fiat currency.
- Purchasing Power with Zero Equity Dilution: As a perpetual preferred stock, STRC has no legal maturity or principal repayment pressure and lacks the voting rights and residual asset claims of common stock. This means Strategy can create billions in fiat purchasing power out of thin air, channeling it entirely into Bitcoin accumulation, without diluting MSTR shareholder equity or increasing rigid debt interest expenses.
Through the "issue more STRC ➡️ raise fiat ➡️ buy BTC ➡️ increase company net assets ➡️ boost STRC trust" loop, Strategy successfully constructed what seemed like an infinitely cycleable capital flywheel.
However, a key prerequisite for this flywheel's smooth operation is that STRC must trade near its $100 par value. Once the market price falls significantly below $100, based on ATM fundraising terms and market arbitrage logic, Strategy will effectively be unable to absorb funds from the market through the discounted preferred shares, and its entire capital magic trick will factually grind to a halt.
At the design stage, to ensure STRC's secondary market price would consistently adhere to the $100 target par value, Strategy introduced a "monthly dynamic dividend rate adjustment" mechanism. Simply put, when STRC's market price is below $100, Strategy can increase the dividend rate to enhance the product's attractiveness; when the price is above $100, it can lower the dividend rate — in theory, through continuous dividend rate adjustments, STRC should be able to trade long-term around $100.
But now, even though Strategy has raised the dividend to a high of 11.5% and switched the payout frequency from monthly to bi-weekly, STRC's "unpegged" state hasn't been effectively corrected... Why is that?
Unpegging Reasons: Confidence, Confidence, and Still Confidence
The ineffectiveness of dividend corrections means the market is pricing in risks that go beyond STRC's yield itself. From current market discussions, risk concerns are primarily focused on two levels.
First, surface-level technical factors. Some market participants believe the recent decline largely stems from concentrated stampeding due to arbitrage capital deleveraging.
Over the past year, STRC traded consistently around $100, attracting significant yield-seeking arbitrage capital. Such funds often use leverage to amplify returns, capturing both dividend income and price convergence arbitrage. However, as STRC broke below $100 and continued to weaken, some leveraged accounts hit risk control limits, forcing them to sell holdings; price declines then triggered more leveraged capital to unwind, creating a chain reaction. In this process, selling pressure intensified, causing STRC's decline to far exceed what normal supply-demand changes would warrant.
Yet, explaining the current market performance solely through leverage-driven stampeding seems insufficient. For many investors, a deeper concern lies in Strategy's liquidity reserve situation.
Earlier this month, J.P. Morgan released a research report pointing out that Strategy has an annual dividend obligation of approximately $1.7 billion. Based on current cash reserve levels, its cash on hand is only sufficient to cover about 6.3 months of preferred stock dividend payments. This sparked market worries about Strategy's promised future liquidity coverage capability.
In response, Strategy offered a starkly different explanation. The company officially posted on X, emphasizing that if its massive Bitcoin reserves are taken into account, they are sufficient to cover 32 years of dividend payments.
The issue, however, is that these two statements are based on different premises. J.P. Morgan focuses on Strategy's cash position, while Strategy's calculation implies a crucial assumption—if necessary, the company can obtain funds by selling Bitcoin.
This touches on the market's most sensitive nerve. Early this month, Strategy sold a portion of its Bitcoin holdings for the first time. Although the sale involved only 32 Bitcoins and was packaged by the company as "active market desensitization testing," with mention of "buying back more later," it still caused significant market shock. The reason is that over the past few years, Strategy and its founder Michael Saylor have consistently promoted a core narrative to the market—Bitcoin is a long-term strategic reserve asset, and the company will source operational funds through capital market financing, not by selling Bitcoin.
Therefore, when the market witnessed Strategy selling Bitcoin for the first time, it inevitably raised greater concerns—if financing conditions tighten in the future, will Strategy need to rely further on selling Bitcoin to meet dividend obligations? If the answer is not an absolute no, then investors must reassess the risk profile of related securities.
From this perspective, the persistent "unpegging" of STRC reflects the market re-evaluating the robustness of Strategy's entire capital structure.
Strategy's Buying Power Could Turn into Selling Pressure
For Strategy, the biggest impact of STRC's sustained unpegging is the weakening of its financing function.
Over the past few years, Strategy's ability to continuously expand its Bitcoin reserves hinged on a core logic: raising funds from capital markets by issuing stocks, convertible notes, and preferred shares, then using those funds to increase Bitcoin holdings. STRC is precisely Strategy's most important financing tool. When it trades persistently below its $100 target par value, it means the market is demanding higher risk compensation, and Strategy's financing ability consequently faces a temporary shutdown.
Going forward, STRC's re-pegging status may become a crucial indicator for the market to observe Strategy's risk profile. If STRC remains discounted for an extended period, leading to persistently constrained financing ability, while Strategy's cash reserves continue to deplete, market fears about Strategy potentially needing to sell more Bitcoin to meet dividend payments will inevitably intensify.
Once this expectation strengthens, its impact will extend beyond STRC itself. As one of the most significant marginal buyers in the Bitcoin market over recent years, Strategy's financing ability and accumulation pace have profoundly influenced market supply-demand expectations. If Strategy's buying power turns into selling pressure, it could exert unimaginable downward pressure on Bitcoin.
