Written by: @100y_eth
Compiled by: AididiaoJP, Foresight News
Under the current circumstances, there is no reason for STRC to return to $100.
The mechanisms originally designed to keep STRC trading near $100 are as follows: If the STRC price falls below $100, the dividend yield rises due to the price drop, and Strategy Corp. may also increase the nominal dividend rate to above 11.5%. Since Strategy has the right to buy MSTR at $101 per share, price increases beyond that level are suppressed. If Strategy goes bankrupt, STRC holders have a claim for $100 per share plus accumulated unpaid dividends. For STRC to return to $100, these mechanisms need to function normally.
Dividend Rate Adjustments Cannot Be a Fundamental Solution
First, increasing the dividend rate is unlikely to be effective for two reasons. A higher dividend rate becomes a financial burden for Strategy Corp., potentially worsening its financial condition. From an investor's perspective, offering a high dividend rate in a challenging environment could also be a negative psychological factor.
Dividend rate adjustments and payments are not an obligation of STRC but depend on board decisions, creating significant uncertainty from an investor's viewpoint.
Since STRC pays dividends on a per-share fixed amount basis, not as a percentage of principal, it was supposed to be a product that allows dividend investors not to worry too much about their principal. Nevertheless, there remains high uncertainty about whether Strategy can continue to pay dividends to STRC investors at the current level.
Of course, Strategy currently has dollar reserves that can cover bond interest and preferred stock dividends for about 9.8 months; if it sells its Bitcoin holdings, it could sustain for about 30 years. However, this does not completely resolve the uncertainty surrounding dividends.
Dollar reserves covering only 9.8 months is far from a long-term solution. To extend this period using dollar reserves, Strategy would need to continue issuing MSTR via ATM. But at the current mNAV level, this would inevitably dilute book value per share, which is absolutely unsustainable for Strategy.
Even if dollar reserves are exhausted, extending the lifespan of Strategy and STRC by selling Bitcoin fundamentally contradicts the purpose and essence of Strategy as a company. It would reduce the appeal of STRC and MSTR as investment products and accelerate a negative feedback loop.
The $100 Per Share Claim is Meaningless Without Redemption
If STRC price is guided solely by dividend rate adjustments, then the $100 figure has no practical significance. The fundamental reason STRC could be guided to trade near $100 is that, in the event of Strategy's bankruptcy, STRC has a claim on the remaining assets for $100 per share plus accumulated unpaid dividends.
Simply put, STRC currently trading at $75 appears to be selling at a massive 25% discount to its conventional $100 face value. But is this really the case?
The key point is that STRC is not a bond, but a preferred stock. Bonds have maturity dates; if STRC were a bond, investors would receive $100 per share at maturity, and such a significant discount likely wouldn't exist.
Unless Strategy separately announces a buyback of STRC, the only way for STRC investors to get their principal back is for Strategy to go under.
There are two problems here. Contrary to the prevailing view in the community, Strategy is not likely to go bankrupt easily. The company's net leverage ratio is only 11%, and its amplification factor (the ratio of bonds and preferred stock to Bitcoin reserves) is merely 44%. For the company to actually go bankrupt, its leveraged position via bonds would have to collapse. Unless Bitcoin falls to about 11% of its current level (around $6,600), this is difficult to achieve. Even considering price declines from selling pressure, it's unlikely to happen unless Bitcoin approaches around $10,000.
Even if bankruptcy does occur, it's still a problem. If Strategy goes bankrupt, it means a leveraged position of just 11% has collapsed. Under such dire circumstances, preferred stock investors, including STRC holders (whose claims are junior to bondholders), would likely struggle to fully obtain the remaining assets.
In other words, for STRC investors to receive $100 per share, two conditions must be met simultaneously: 1) Strategy must go bankrupt; 2) If such a bankruptcy scenario actually occurs, they likely won't be able to get the full $100.
There's No Reason for STRC to Trade Near $100
Strategy set the STRC dividend rate at 11.50% based on a $100 price. But the STRC price is determined by the market. The $100 per share claim on remaining assets seems largely meaningless in the worst-case scenario, and the long-term sustainability of dividend rate adjustments and payments is also questionable.
STRC is currently trading around $75. At this price, the effective annualized dividend yield reaches 15.3%. That is, investors are demanding an additional yield of about 3.8% over the original 11.5% dividend rate due to factors like bankruptcy risk and dividend payment uncertainty.
If investors believe a 20% dividend yield is reasonable given STRC's risks, then STRC might trade at $57.5. Since the fair price depends on market uncertainty and investor psychology, no one can know for sure where it should be.
Under the current circumstances, there is no reason for STRC to trade near $100. Its price will converge to the market price assigned by investors.
