Original | Odaily Planet Daily(@OdailyChina)
Author|Azuma(@azuma_eth)
The "de-pegging" situation of MicroStrategy's preferred stock STRC continues to intensify.
During yesterday's U.S. stock market session, STRC broke below the 80 mark for the first time, hitting a low of $73.62 at one point. Although it rebounded slightly at the close, the price was still only $75.69, nearly 25% "de-pegged" from the target par value of $100.
Last week, we wrote an article about STRC's de-pegging titled "STRC De-pegged by 11%, Can MicroStrategy's Perpetual Motion Machine Keep Running?", focusing on the reasons for STRC's de-pegging and briefly describing the potential future impacts.
However, based on community discussions, it seems many readers still don't fully understand just how dire the consequences of STRC's continued de-pegging are, so we decided to write another article to break down this issue.
MicroStrategy's Most Important Funding Channel Has Failed
What exactly is STRC? In a nutshell, this is MicroStrategy's cheapest and most efficient funding channel.
The essence of MicroStrategy's business model is to continuously raise funds from the market to accumulate more BTC, then raise more funds, and accumulate more BTC. This is a cycle that must keep running. MicroStrategy's high valuation, to a large extent, stems from the market's belief in its ability to continuously raise funds and buy BTC. As long as its fundraising ability exists, it can keep expanding its BTC holdings; and the growing BTC holdings, in turn, further support market expectations for its future fundraising capabilities.
Over the past few years, MicroStrategy has tried almost all fundraising methods—issuing common stock, convertible bonds, various types of preferred stock—and continuously invested the raised funds into BTC. Among all these fundraising instruments, STRC was once considered by the market to be the closest to "perfect," and Michael Saylor's proudest creation. Saylor once boasted that "STRC is a product designed by AI, humans couldn't have designed this."
As preferred stock, STRC's advantages are very clear. Issuing common stock could dilute existing shareholders' equity; issuing convertible bonds would burden the company with future debt repayment obligations; but STRC, as perpetual preferred stock, has no maturity date, does not dilute common shareholders, and only requires fixed dividend payments. For MicroStrategy and Saylor, this was almost the lowest-cost, most efficient way to raise funds.
From its inception, STRC was designed as a product pegged to $100. MicroStrategy's idea was to keep STRC trading around $100 long-term by dynamically adjusting the dividend rate (sounds a bit like an algorithmic stablecoin, doesn't it?). As long as the secondary market could maintain this price, the company could continuously issue new STRC close to par value, raising new funds to keep buying Bitcoin.
That is to say, STRC's core value lies in its continuous, never-ending fundraising capability, but this capability is premised on its price staying near the target par value. As STRC continues to de-peg, this funding channel has essentially been blocked. Because for any investor, if they can buy the same STRC in the secondary market for only $75, they would not participate in the company's new preferred stock issuance at a price close to $100.
For MicroStrategy, it must either keep increasing the dividend rate to attract funds (proven to have limited appeal), or accept the lower fundraising efficiency of discounted issuance (which actively breaks the original target par value). Either way, it means this funding machine is starting to experience increasing friction.
The Funding Tool Has Turned into a Cash Flow Burden
If it were just a temporary failure of fundraising ability, that might be one thing. The bigger problem is that STRC requires MicroStrategy to pay out substantial cash dividends continuously.
According to the latest official data disclosed by MicroStrategy, the current issuance size of STRC has reached approximately $10.49 billion, with a current dividend rate of 11.5%. This means that STRC alone corresponds to a cash dividend payment obligation of over $1.2 billion per year. Adding other preferred stocks like STRD, STRK, STRF issued by MicroStrategy, this number climbs further to about $1.7 billion.
In the common stock issuance filing on June 21 (note, it's common stock, we'll discuss this in detail later), MicroStrategy disclosed that the company's cash reserves are approximately $1.4 billion. Based on this cash reserve level, MicroStrategy's book cash can cover less than a year of preferred stock dividend payments.
Breaking the Deadlock Requires Money, But Where Does the Money Come From?
Whether to sustain its own business model or to escape the current severe cash flow situation and avoid dividend payment default (more urgent now), MicroStrategy needs more funds. Theoretically, only three main "money-making" paths remain before MicroStrategy.
First, issuing common stock.
This is currently the most direct and mature method of financing. Through the ATM (At-the-Market Offering) program, MicroStrategy can continuously sell MSTR common stock to the market to raise funds.
However, common stock financing is not without cost. Continuous issuance means the number of outstanding shares keeps increasing. If the growth rate of BTC purchased with newly raised funds cannot outpace the share expansion rate, the growth of BTC per share will slow down, and common shareholders will face continuous dilution — note this point, it's important later.
Second, issuing more debt.
Over the past few years, MicroStrategy has repeatedly raised funds through debt instruments like convertible bonds, which were also an important funding source for its early large-scale BTC accumulation.
However, as preferred stock issuance expands and fixed cash outflows continue to increase, the market has started paying more attention to MicroStrategy's liquidity and debt repayment ability. In the current funding environment, if the company issues bonds again, investors will likely demand higher risk premiums, meaning financing costs will be significantly higher than in the past.
More importantly, bonds are different from preferred or common stock; their interest payments and principal repayments are rigid obligations. Against the backdrop of continuously declining cash reserves and increasing dividend payouts, further expanding debt will undoubtedly加重 the company's financial burden and also compress future fundraising space.
Third, selling BTC.
From a financial perspective, this is the fastest way to replenish cash reserves. MicroStrategy must have considered this path. The company stated on its official X account regarding dividend payment pressure: "When considering its massive Bitcoin reserves, it is sufficient to cover 32 years of dividend payments."
But for MicroStrategy, this is also an extremely risky choice. Earlier this month, MicroStrategy sold some of its Bitcoin holdings for the first time. Although the sale was only 32 BTC, and the official statement packaged it as an "active market desensitization test," mentioning that "more will be bought back later," it still caused a short-term market dip.
As the largest single holder of Bitcoin in the market, MicroStrategy's moves can easily trigger chain reactions. If it increases sales volume in the future, it will undoubtedly have a huge impact on the already fragile BTC price. If BTC declines further, MicroStrategy's so-called "reserves" would also shrink rapidly.
In summary, under the current circumstances, every feasible funding channel for MicroStrategy comes at a higher cost than before.
Has MicroStrategy Made Its Choice?
Based on MicroStrategy's latest moves, aside from hinting at possibly selling BTC, the company seems to have already chosen which path to take.
Since June, MicroStrategy has relied on its common stock ATM (At-the-Market Offering) program for three consecutive weeks to raise funds. The latest round (June 22) is particularly typical.
According to MicroStrategy's latest 8-K filing, the company sold a total of 2,714,839 shares of MSTR common stock within a week, raising $335.5 million in total. However, that same week, MicroStrategy only bought 520 BTC, spending a total of $34.9 million, with an average purchase price of about $67,068. In other words, out of the $335.5 million raised, only about one-tenth was actually used to continue accumulating BTC. The remaining funds were mainly used to replenish the company's cash flow reserves, increasing cash from about $1.1 billion to the current approximately $1.4 billion.
That seems somewhat effective? But there's another trap here.
For MSTR common shareholders, the most critical information to monitor is: for every new common share issued, how much BTC can ultimately be bought back with the funds raised, and is it enough to cover the BTC equity corresponding to this share? If the new fundraising can buy back more BTC than the amount originally corresponding to this share, then common shareholders' equity is actually increased; conversely, if the funds raised buy back less BTC than the amount corresponding to the new shares' BTC equity, then common shareholders experience dilution.
Clearly, MicroStrategy's recent common stock issuance has come at the cost of diluting common shareholder equity. MicroStrategy's official data also shows that the BTC per MSTR share has dropped from a peak of 220,900 Sats to 218,046 Sats.
This is the biggest limitation of common stock financing. For most listed companies, issuing common stock is just one of many financing methods; but for MicroStrategy, common stock is part of its business model itself.
Over the past few years, the reason MicroStrategy has been able to grow continuously is essentially by relying on the continuous operation of the "Raise Funds ➡️ Buy BTC ➡️ Consolidate Market Expectations ➡️ Raise Funds Again ➡️ Buy More BTC..." flywheel. The market's core expectation for MicroStrategy is its ability to continuously create more BTC equity for common shareholders, not dilution.
However, when MicroStrategy has to rely increasingly on common stock financing to replenish cash reserves rather than continue accumulating BTC, the operating logic of this flywheel changes. While in the short term, common stock financing can indeed alleviate MicroStrategy's cash pressure, it can hardly become a long-term solution to replace STRC.
Once common stock financing continuously erodes BTC per share equity, the foundation upon which MSTR's high premium relies may also be challenged, and this is precisely the core competitive advantage of MicroStrategy's entire business model.
What Will Happen to BTC?
Over the past few years, MicroStrategy has become the most important marginal buyer in the BTC market (arguably without the "one of"). To date, MicroStrategy has accumulated holdings of 847,363 BTC, accounting for about 4% of BTC's current circulating supply, worth over $50.7 billion. The market had long grown accustomed to Saylor's massive, unwavering weekly purchases.
But now, this situation is changing. MicroStrategy can still raise funds through common stock issuance, but most of the funds no longer flow into BTC; instead, they are prioritized for replenishing cash reserves. This means that under the same fundraising scale, the new buying pressure actually entering the BTC market is decreasing.
More disadvantageously, this situation may persist. If STRC cannot re-peg long-term, preferred stock financing remains blocked, MicroStrategy will have to rely long-term on common stock financing to maintain cash flow, possibly even further compressing the proportion of funds used for BTC accumulation. For the BTC market, this means the past's most stable and certain institutional buying pressure will no longer grow as consistently as it did in previous years.
But more alarmingly, if common stock issuance excessively dilutes MSTR shareholder equity, MicroStrategy may have to consider the other funding channel — selling BTC.
From weakened new buying pressure to the emergence of potential selling pressure, today's MicroStrategy is no longer BTC's biggest marginal buyer, but a giant sword hanging over BTC.
