Summary
- Strategy’s primary preferred stock fell further from its $100 par value, reaching a new low as Bitcoin prices remained steady.
- There is increasing scrutiny on the company’s capital structure, particularly the ongoing expenses related to Stretch (STRC).
- With the Bitcoin-buying firm’s holdings valued at $13.1 billion in the red, Michael Saylor reiterated the company’s commitment to disciplined capital allocation.
On Friday, as U.S. markets opened, Strategy’s leading preferred stock took another hit, reaching a record low coinciding with Bitcoin trading below the $60,000 threshold.
Following the market opening, the dividend-paying asset known as Stretch (STRC) quickly dipped to a new low of $71.25 before slightly recovering to $75.30, reflecting a decrease of nearly 0.5% for the day, based on data from Yahoo Finance. This represents a drop of almost 25% from its intended trading level.
The recent downturn in the preferred stock has led to a heightened emphasis on the capital structure of the Bitcoin-focused firm, with analysts urging Strategy’s Executive Chairman and co-founder Michael Saylor to secure additional cash to manage the company's ongoing expenses.
In a post on X, Saylor recognized that “volatility tests every capital structure,” while reaffirming the firm’s commitment to the leading digital asset by market capitalization, alongside “disciplined capital allocation, credit quality, and long-term value creation.”
Bitcoin’s market value has slipped roughly 5% over the past week, now sitting at around $60,130, which is an improvement from a recent 21-month low of $58,188 recorded on Thursday, according to CoinGecko. This period has seen considerable outflows from exchange-traded funds and a forthcoming options expiry, with $10.6 billion in positions nearing settlement on Deribit.
On Thursday, Andy Baehr, managing director at crypto trading firm GSR, explained to Decrypt that market participants are closely monitoring Strategy’s cash burn, as the volatility of STRC challenges the confidence of many investors who consider the product akin to a bank account.
“They fear that Michael Saylor has cornered himself, and that his foundational principles may falter,” he noted. “I suspect that most [STRC] purchasers did not anticipate a 25% decline. They were seeking yield.”
In less than a year, Strategy has issued over $10 billion in STRC, leading CryptoQuant to describe this week as a period of rising costs. The firm had $2.25 billion available for dividends and debt in January, but its cash reserves have since diminished significantly.
The analytics platform from South Korea pointed out that as Strategy’s Bitcoin holdings trade at a loss, any sales beyond the recent liquidation of 32 Bitcoin previously announced could crystallize losses for common shareholders and diminish shareholder value.
At one point, the company’s stock dipped to $82.33 before briefly recovering. By the end of the day, shares were priced at $85.80, reflecting an increase of about 0.5% on Friday.
Given Bitcoin's current valuation, Strategy’s total Bitcoin reserve of 847,363 BTC is worth nearly $51 billion, indicating a loss of approximately $13.1 billion.
Nic Carter, founding partner at Castle Island Ventures, suggested in a post on X on Thursday that Strategy may need to increase STRC’s dividend for the eighth time since its launch, viewing the product similarly to a junk bond investment.
While STRC currently offers an annual dividend of 11.5%, the implied yield rises for investors as its price moves further from the $100 par value. At the current trading level, investors are effectively seeking returns exceeding 15% to engage with the product.
“Since the structure is not sustainable and relies on the continuous monetization of common equity, which is trading close to par,” he added, “it will persist in trading at a discount unless Strategy increases the yield on STRC to a more suitable range of 15-20% in my view.”