Analyst Disputes Terra Comparisons Amid Strategy's STRC Decline

Benchmark's Mark Palmer emphasizes STRC's distinct characteristics compared to Terra's UST.

The preferred shares of Strategy's STRC have recently fallen significantly, trading around $82.53, leading to comparisons with the collapsed Terra UST stablecoin. Mark Palmer, an analyst from Benchmark, argues that these parallels are misleading, as STRC is fundamentally different from typical stablecoins.

Palmer clarified that STRC is not designed to maintain a fixed value like stablecoins, which aim to hold a $1 peg. Instead, STRC is a preferred stock linked to bitcoin and intended to trade around $100. The recent drop represents a market adjustment rather than a failure to maintain a peg, according to Palmer. He stated, "STRC is not a stablecoin. The goal is to keep it trading close to $100, not to assure it. What has transpired should be viewed as a market-driven reset of yield expectations."

STRC’s decline is noteworthy, as it has seen a drop of approximately 11% from its target price, prompting speculation about its stability. The stock offers an annual dividend yield of 11.5%, which some critics liken to the high yields promised by the now-defunct Terra's Anchor protocol.

Unlike UST, which relied on an algorithmic system with no solid backing and ultimately crashed, STRC is supported by Strategy's substantial bitcoin reserves, which total about 847,363 coins valued at approximately $54.5 billion. The current price drop has halted Strategy's mechanism for purchasing additional bitcoin when STRC is valued at or above $100, affecting its operational efficiency.

Despite these challenges, Benchmark has maintained a price target of $570 for Strategy's common stock, MSTR, even as it struggled recently, dropping to $109 after five consecutive days of declines.