Leading corporate Bitcoin holder Strategy (MSTR) has described the launch of its Perpetual Resilient Preferred Shares (STRC) as the company’s “iPhone moment,” and while it supports Bitcoin accumulation, risks remain.
Before delving into these risks, it’s worth noting that while the focus is on STRC, specifically its greater liquidity and adoption, they also apply to similar priority products, including SATA, another Bitcoin finance company’s priority product, Strive.
Greg Cipolaro, global director of research at NYDIG, said in a note that these instruments “are not well understood from a traditional credit or equity perspective,” but instead require a different analytical framework.
By design, STRC targets a stable $100 share price and uses variable monthly dividends to keep trading close to that level. According to data from STRC.live, this approach has supported the issuance of billions of dollars and the acquisition of more than 50,000 Bitcoins.
The core of STRC is to guide prices by adjusting yields. If the stock price exceeds $100, the company can cut its dividend to cool demand. If the stock price falls below that level, it could raise the dividend to attract buyers. Keeping prices stable allows companies to issue new shares close to par value, thereby bringing in capital that can then be used to buy Bitcoin.
So far, this novel financial instrument has been a success. Not only did it allow Strategy to purchase over $3.5 billion worth of Bitcoin, it also attracted institutions that added STRC to their balance sheets.
In fact, the product is similar to a money market fund, with a floating yield of 11.5%, much higher than U.S. Treasuries. The appeal hinges on a stable $100 price and high yields.
The mechanism creates a powerful feedback loop when conditions are favorable, writes NYDIG’s Cipolaro. During cycles in which STRC traded near parity, the company was able to raise capital, use the proceeds to purchase more Bitcoin, expand its asset base, and maintain investor confidence. This confidence supports additional issuance.
“As long as preferred shares remain close to par value, shares trade above net asset value, and capital markets remain open, the flywheel will drive continued Bitcoin demand,” Cipolaro wrote in the note.
However, not everything is rosy.
BitMEX Research wrote in a report titled “A Little Stretched” that it believes the risks associated with the product are “significantly greater than those associated with short-term U.S. Treasuries.”
Where the risk actually exists
Bullish investors often point out that STRC is well-capitalized and can easily pay its dividend, given that Strategy has a massive 761,068 BTC and over $2.2 billion in cash reserves. That’s roughly a 50-year dividend payout period, and the company can still lower STRC’s dividend over time to expand coverage. On top of that, the company also has monetization options for its massive Bitcoin reserves, which could lead to further dividend payments.
However, these risks are not based on dividend coverage at all, according to NYDIG’s Cipolaro.
“The appropriate way to assess STRC and SATA risk is through a governance and affiliation lens, rather than focusing solely on payment risk,” he wrote.
The mechanism used by STRC also creates a pressure path. If Bitcoin falls and confidence in Strategy’s balance sheet weakens, STRC could fall below par.
To defend the price, the company needs to raise its dividend. Higher payouts increase cash obligations, which in turn worries investors and drives down prices. This kind of feedback loop is common in credit markets.
In a standard corporate environment, this cycle might end with a forced asset sale. Companies may have to sell core assets to meet rising debt, locking in losses at the worst possible time. For Strategy, this means selling BTC in falling markets. However, Strategy’s Michael Saylor has repeatedly stated that he will not sell the company’s Bitcoin stack.
However, the STRC provisions provide the company with another option. Target prices are not binding commitments. If circumstances change, the strategy could be to reduce the dividend rather than increase it.
According to BitMEX Research’s interpretation of SEC filings related to STRC, Strategy may “reduce the dividend rate by up to 25 basis points per month at its sole discretion, regardless of other circumstances.”
Furthermore, unpaid dividends can accumulate without triggering a default or forcing an asset sale. As BitMEX Research puts it, such tools are “written by companies for companies.”
Read more: Strategy’s latest massive Bitcoin purchase gives insight into its evolving funding model
Designed to bend, not break
This flexibility changes the way STRC handles crises when they occur.
Instead of the distressed company, the pressure shifts to security holders. If dividends are cut, the yield becomes less attractive and market prices are likely to fall to reflect the new reality.
NYDIG’s Cipolaro made clear in his report that the structure “can maintain solvency while still providing suboptimal outcomes for preferred stockholders due to loss of confidence and funding sources.” The risk is not dividend default but loss of attractiveness.
Strategy’s traditional software business itself does not bear these costs. The model relies on ongoing issuance or balance sheet management relative to its Bitcoin holdings.
“The binding limit is not revenue generation, but rather the combination of sustained access to capital markets and adequate asset coverage,” NYDIG’s Cipolaro writes. This setup invites comparisons to a structure that relies on new capital inflows to support spending.
The difference here is that the payout is not fixed. If demand slows, the company can lower its dividend rather than maintain a rate it can’t sustain. This feature helps protect issuers but weakens the claims of investors looking for stability and income.
“When the music stops, if MSTR faces challenges, MSTR may abandon the STRC’s argument that it targets stability rather than selling Bitcoin,” BitMEX Research wrote. “This would be very positive for MSTR, so we believe the dividend payment is quite sustainable and affordable.”
Break the mechanism
The market impact will depend on how long the $100 anchor remains.
As long as demand for income products remains strong and Bitcoin sentiment is supportive, STRC can continue to channel funds into the company’s financial strategy.
This in turn solidifies Strategy’s position as a major public holder of Bitcoin. NYDIG has demonstrated that Bitcoin’s price stability makes the issuance of these products in the market economically viable.
The firm’s research found that both STRC and Striv’es SATA prices fell below average during the sharp decline in Bitcoin prices. When this happens, “issuance becomes uneconomic, limiting the ability to raise capital and slowing the flywheel.”
When circumstances change, risks manifest themselves. A prolonged decline in Bitcoin prices or changes in interest rates could test the price mechanism. If the dividend is cut to preserve cash, STRC could trade well below face value. Losses will be borne by investors who view stocks as a close substitute for cash.
NYDIG provides a framework for institutional investors: “This is similar to shorting a put option on a Bitcoin asset, earning income in exchange for taking on downside risk if Bitcoin declines and erodes the asset’s cushion.” “However, unlike standard options, there is no fixed strike or expiration date and the outcome is path-dependent and subject to management’s discretion.”
The broader meaning is the template itself.
STRC blends equity characteristics with bond-like behavior and built-in adjustment leverage. It provides a new way for companies to raise capital tied to volatile assets without locking in fixed debt.
For now, these tools have done their job: attract capital and support further accumulation of Bitcoin. Unanswered questions are how it will perform under pressure and who will bear the costs when trade no longer looks stable.
The explanation for this situation is not good, but not for MSTR, “investors may feel a little aggrieved when the music stops,” BitMEX concluded.
Read more: Strategy’s credit risk drops as preferred equity value exceeds convertible debt
