STRC drops below $95: Why is the de-pegging continuing? Is there a risk of default?

Cao Zhu, Golden Finance

Summary: On May 29, STRC briefly dropped to $97.11, then rebounded and closed at $98.57. Since then, STRC has been on a downward trend, with the latest report at $94.65. For a preferred stock designed to trade long-term around a $100 face value, this decline has indeed attracted market attention.

1. What is STRC?

According to Strategy's official website, Stretch (STRC) is Strategy's perpetual preferred stock, currently with an annual dividend rate of 11.50%, paid monthly in cash. The dividend rate of STRC adjusts monthly, aiming to encourage the stock price to trade around its $100 face value and reduce price volatility. STRC is listed on Nasdaq and can be traded on most mainstream brokerage platforms.

"Preferred" means it has higher priority in dividends and liquidation than common stock. As a preferred stock issued by Strategy, its position is below bonds but above common stock. Specifically, the "preference" of preferred stock can be reflected in two aspects. First, it receives dividends before common shareholders; preferred shareholders get paid first when profits are distributed, and in case of insufficient profits, they are prioritized for earnings. Second, in bankruptcy, preferred shareholders can be compensated first; compared to common stock, which may receive nothing, preferred shareholders might recover part of their principal.

Essentially, STRC is more like a "high-yield cash flow product" rather than a growth stock seeking capital appreciation. Many investors buy STRC mainly to earn over 11% yield, rather than focusing on stock price appreciation.

2. Why has STRC recently become decoupled?

1. BTC price decline

Strategy's largest asset is Bitcoin, closely tied to BTC price. In late May, the overall crypto market experienced a significant correction: BTC price fell from nearly $82k in the month to around $64.3k at the time of writing, a drop of 21.59%.

The rapid decline from high levels led to risk asset sell-offs, putting pressure on Strategy-related products as well.

2. Pressure from competitors

Another Bitcoin asset management firm, Strive Asset Management (ASST), has taken a different approach. The company recently announced that its perpetual preferred security SATA will pay dividends daily. Over the past two weeks, SATA's price has remained stable around its $100 face value, and even with Bitcoin's decline, its dividend yield has stayed around 13%.

Over the past three months, Strive's stock price has increased by about 110%, while MSTR has only risen 12%, and Bitcoin just 8%. This divergence suggests investors may prefer Strive's more stable balance sheet and higher-yielding preferred stock structure.

Note: Strive was originally an asset management firm founded in 2022, headquartered in Dallas, Texas. Initially, it mainly issued ETFs and was known for its "shareholder value maximization" philosophy. Starting in 2025, Strive underwent a major transformation—mimicking Strategy's model—becoming a Bitcoin reserve company issuing preferred stocks.

Perhaps inspired by Strive's daily dividends, Strategy announced a proposal to change STRC's dividend distribution frequency from monthly to semi-monthly. If approved and adopted, this would shorten reinvestment lag, improve liquidity and market efficiency, and enhance price stability.

This proposal requires joint voting by MSTR and STRC shareholders, and only if both approve can it pass. According to the timeline, voting started on April 28 and will conclude at the June 8 meeting. If approved, the first record date under the new schedule will be June 30, with the first dividend payment on July 15. Eligible shareholders must hold shares before April 17.

3. Technical selling

Strategy hopes to keep STRC around $100 long-term. When the price falls below $100, many quantitative funds may interpret this as a challenge to the product's pricing mechanism. This could trigger passive liquidation, stop-losses, arbitrage fund exits, and other issues, further amplifying the decline.

3. Does STRC face default risk?

Currently, there is no obvious default risk.

First, investors have previously questioned whether Strategy will eventually sell Bitcoin to repay debt or pay dividends, or continue raising funds through securities issuance to expand its Bitcoin holdings. Saylor responded on X: "Progress is going well."

On June 1, Strategy founder Michael Saylor confirmed that the dividend rate of its perpetual preferred stock STRC will remain at 11.50% through June 2026. There have been no cuts, suspensions, or defaults on STRC dividends; everything is normal.

Second, Strategy still holds a large Bitcoin reserve. With 843,706 BTC, Strategy ranks first among Bitcoin treasury companies, holding 4.01% of the total 21 million BTC. As long as Bitcoin does not experience a long-term collapse and the company's financing channels remain open, STRC's cash flow pressure remains manageable.

4. What do industry insiders think?

• Forbes pointed out: STRC was listed in July 2025, the largest IPO in the US that year, raising $82k, with monthly dividend expenses of about $80-90 million. By openly and intentionally selling small amounts of Bitcoin to meet these obligations, Strategy signals to rating agencies that preferred stockholders are treated as senior creditors. This credibility makes STRC more attractive. Increased demand for STRC means raising more funds, which in turn leads to more Bitcoin purchases.

• Benchmark analyst Mark Palmer noted: "Now, investors should view Strategy's Bitcoin holdings as a reliable backup for financing preferred stock dividends."

• Well-known gold advocate and crypto critic Peter Schiff posted on X: "Most STRC investors may end up losing most of their money because once Michael Saylor is forced to cancel dividend payments, the price of STRC will eventually crash. At that point, numerous lawsuits are likely to further exacerbate the problems faced by Strategy (MSTR). Investors who were misled and suffered losses are expected to seek legal compensation to recover their investments."

• The Motley Fool emphasized: First, watch out for STRC's inflation risk. Inflation causes a double hit: it erodes the real value of your $100 stock and also reduces the dividend value you receive. The longer you hold this stock, the more severe the inflation problem becomes. Second, Strategy can easily cut or delay dividends without traditional default risks. Therefore, if the price falls below face value, new issuance will stop, and you will hold an asset with yields lower than initially advertised, and the principal may be unrecoverable in the short term or even forever.

Summary

Recently, STRC has fallen from around $100 to $94.65, mainly due to Bitcoin price declines, competitor influence, and technical selling. Currently, there is no default risk; the company continues to pay dividends at 11.5% and maintains it as a core financing tool.