Original | Odaily Planet Daily (@OdailyChina)
Author|Azuma(@azuma_eth)
Strategy's preferred stock, STRC, is in a state of continuous "unpegging."
US stock market data shows that since May 15th, STRC has gradually deviated from its target par value of $100. The discount has significantly widened recently, hitting a low of $83.26 during intraday trading yesterday. It closed at $88.59, representing an "unpegging" of over 11% from its target par value.
For a common stock, an 11% drop might not be a major concern. But for STRC, its continuous deviation from the $100 target par value signifies that the core design goal of this product is facing a severe challenge.
In Strategy's initial design, STRC was crafted to be an income-oriented security operating around a $100 par value, not a highly volatile speculative asset. As the market price diverges more and more from the target par value, a growing number of investors are re-examining the logic behind this product.
More importantly, as Strategy continuously expands its Bitcoin reserves, STRC has gradually become the company's most important financing channel. In a sense, the market's 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, it's essential to first clarify STRC's product structure and its unique pegging 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. It has a fixed target par value ($100) and relatively stable dividend yield, making its nature closer to a fixed-income-like security.
- Odaily Note: Strategy founder Michael Saylor recently revealed that STRC was designed with the assistance of AI.
Within Strategy's balance sheet expansion loop, STRC is not merely an ordinary financing tool; it is currently the most powerful engine of Strategy's capital flywheel.
Before introducing STRC, Strategy primarily relied on issuing convertible notes and directly issuing additional common shares to raise funds for purchasing Bitcoin. However, both models had limitations—convertible notes were constrained by maturity dates and debt leverage ratio caps, while frequent common share issuances would dilute existing shareholder equity.
The emergence of STRC perfectly addressed this pain point. Its core utility within Strategy's strategy is mainly reflected in two dimensions:
- Unlimited "At-the-Market" (ATM) Offering Plan: As long as STRC's market price remains stable at $100 or above, Strategy can continuously issue new STRC shares in the secondary market through the ATM mechanism, raising fiat currency.
- Zero Equity Dilution Purchasing Power: 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, without diluting MSTR shareholder equity or increasing rigid debt interest, and deploy it all towards increasing Bitcoin holdings.
Through the closed loop of "issue more STRC ➡️ raise fiat currency ➡️ purchase BTC ➡️ increase company net assets ➡️ boost STRC trustworthiness," Strategy successfully constructed a capital flywheel that seemed capable of infinite cycles.
However, the crucial prerequisite for this flywheel to operate smoothly is that STRC must maintain a price around its $100 par value. Once the market price falls significantly below $100, according to ATM offering terms and market arbitrage logic, Strategy will effectively be unable to absorb funds from the market using discounted preferred shares, and its entire capital operation would factually stall.
In its initial design, to ensure STRC's secondary market price would consistently adhere to the $100 target par value, Strategy introduced a "monthly dynamic dividend yield adjustment" mechanism. Simply put, when STRC's market price is below $100, Strategy can increase the dividend yield to enhance the product's attractiveness; when the price is above $100, it can decrease the dividend yield—in theory, through constant adjustment of the dividend yield, STRC should be able to operate long-term around $100.
But now, even though Strategy has raised the dividend to a high of 11.5% and also changed the payout frequency from monthly to bi-weekly, STRC's "unpegged" state has not been effectively corrected... Why is that?
Reason for Unpegging: Confidence, Confidence, and More Confidence
The ineffectiveness of the dividend correction suggests that the risk the market is pricing in has already exceeded the STRC yield itself. Based on current market discussions, market risk concerns are mainly reflected at two levels.
First, there are surface-level technical factors. Some market participants believe the recent decline largely stems from concentrated selling pressure during deleveraging by arbitrage funds.
Over the past year, STRC has long traded around $100, attracting substantial yield-oriented arbitrage capital. This type of capital often employs leverage to amplify returns, capturing dividend income while also profiting from price convergence towards par value. However, as STRC broke below $100 and continued to weaken, some leveraged accounts began hitting risk control limits, forcing them to sell positions; the price decline then triggered more leveraged capital to unwind positions, ultimately forming a chain reaction. During this process, selling pressure constantly reinforced itself, causing STRC's decline to far exceed what normal supply-demand changes would indicate.
But explaining the current market performance solely with leverage-driven selling pressure still seems insufficient. For many investors, a deeper concern lies in Strategy's liquidity reserve situation.
Earlier this month, JPMorgan released a research report noting that Strategy has an annual dividend payment obligation of approximately $1.7 billion. Based on current cash reserve levels, the cash on hand is only sufficient to cover about 6.3 months of preferred stock dividend payments. This has sparked market concerns about Strategy's promised future liquidity coverage capability.
In response, Strategy offered a completely different explanation. The company officially stated on X, emphasizing that if its massive Bitcoin reserves are taken into account, they are sufficient to cover 32 years of dividend payments.
However, the issue is that these two statements are actually based on different premises. JPMorgan focuses on Strategy's cash position, while Strategy's calculation implies a crucial assumption—in case of necessity, the company can obtain funds by selling Bitcoin.
This precisely touches upon the market's most sensitive nerve. Earlier this month, Strategy sold a portion of its Bitcoin holdings for the first time. Although the sale size was only 32 Bitcoins, and the official packaging framed it as an "active market desensitization test," mentioning "will buy back more later," this move still caused a significant market shock. The reason is that over the past few years, Strategy and its founder Michael Saylor have consistently conveyed a core narrative to the market—Bitcoin is a long-term strategic reserve asset, and the company will raise operational funds through capital markets, not rely on selling Bitcoin.
Therefore, when the market saw Strategy actually selling Bitcoin for the first time, it inevitably sparked greater concern—if the financing environment tightens in the future, will Strategy need to rely further on selling Bitcoin to fulfill its dividend obligations? If the answer is not an absolute 'no,' then investors must reassess the risk level of the related securities.
From this perspective, behind the continuously "unpegged" STRC, the market is, in fact, reassessing 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 continuous unpegging is the weakening of its financing function.
Over the past few years, Strategy's ability to continuously expand its Bitcoin reserves hinged on the core logic of raising funds from capital markets by issuing stocks, convertible notes, and preferred shares, then using those funds to increase Bitcoin holdings. STRC has been Strategy's most important financing tool. When it trades persistently below its target par value of $100, it signals that the market is demanding higher risk compensation, and Strategy's financing ability consequently experiences a temporary breakdown.
Going forward, STRC's re-pegging status may become a key indicator for the market to observe Strategy's risk profile. If STRC remains in a discounted state long-term, leading to persistently constrained financing ability, and Strategy's cash reserves continue to deplete, market concerns about Strategy potentially needing to sell more Bitcoin in the future to meet dividend payments will inevitably intensify.
Once this expectation strengthens, its impact will no longer be confined to STRC itself. As one of the most important marginal buyers in the Bitcoin market in 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.
