Preferred stock STRC de-anchored by 11% — can Strategy’s perpetual-motion engine still keep running?

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Author | Azuma, Odaily Planet Daily

Strategy's preferred stock STRC is in a continuous "de-anchoring" process.

Market data shows that since May 15, STRC has gradually deviated from its $100 face value target, with the discount widening significantly in recent days, briefly hitting a low of $83.26 during intraday trading on Thursday, and closing at $88.59, more than 11% "de-anchored" from the target face value.

For an ordinary stock, an 11% decline might not be a big deal, but for STRC, the ongoing deviation from the $100 face value indicates that the core design goal of this product is facing serious challenges.

Because in Strategy's original design, STRC was created as an income-oriented security operating around a $100 face value, not as a highly volatile speculative asset. Now, as the market price diverges more and more from the target face value, more investors are beginning to reassess the logic behind this product.

More importantly, as Strategy continues to expand its Bitcoin reserves, STRC has gradually become the company's most important financing channel. In a sense, the market's valuation of STRC not only reflects investors' attitude toward a preferred stock but also indicates confidence in Strategy's entire capital operation model.

STRC: The Engine of Strategy's Capital Flywheel

To understand the severity of this de-anchoring, it is first necessary to clarify the product structure of STRC and its unique anchoring mechanism.

STRC is an innovative financial derivative launched by Strategy in 2025. Unlike Strategy's common stock MSTR, STRC is positioned as a perpetual preferred stock with a fixed face value ($100) and relatively stable dividend yields, resembling a security with fixed-income characteristics.

Odaily note: Strategy founder Michael Saylor recently revealed that STRC was designed with AI assistance.

In Strategy's expanding balance sheet cycle, STRC is not just an ordinary financing tool but the strongest engine of Strategy's current capital flywheel.

Before launching STRC, Strategy mainly relied on issuing convertible notes and directly issuing common stock to raise funds for Bitcoin purchases. However, both methods had limitations—convertible notes were constrained by maturity dates and debt leverage limits, while frequent equity issuance would dilute existing shareholders' equity.

The emergence of STRC perfectly solves this problem. Its core utility within Strategy's strategy mainly manifests in two dimensions:

Unlimited "at-the-market" (ATM) issuance plan: As long as STRC's market price remains at or above $100, Strategy can continuously issue new STRC shares via the ATM mechanism in the secondary market to raise fiat currency.

Zero equity dilution purchasing power: As a perpetual preferred stock, STRC has no statutory maturity repayment pressure and does not have voting rights or residual asset distribution rights like common stocks. This means Strategy can create billions of fiat currency out of thin air without diluting MSTR shareholders' equity or increasing rigid debt interest, and then invest all of it into Bitcoin accumulation.

Through the closed loop of "issuing STRC ➡ to raise fiat currency ➡ to buy BTC ➡ to increase net assets ➡ and boost STRC trust," Strategy has successfully built a seemingly infinite capital flywheel.

However, the smooth operation of this flywheel depends critically on STRC maintaining close to its $100 face value. If the market price falls significantly below $100, then according to the ATM fundraising terms and market arbitrage logic, Strategy will no longer be able to effectively absorb funds from the market via discounted preferred shares, and the entire capital magic will effectively stall.

Initially, to ensure that STRC's secondary market price could always stay close to the $100 target, Strategy introduced a "monthly dynamic dividend rate adjustment" mechanism. Simply put, when STRC's market price is below $100, Strategy can increase the dividend rate to enhance product attractiveness; when the price is above $100, it can lower the dividend rate—ideally, by continuously adjusting the dividend rate, STRC should be able to operate around $100 in the long term.

But now, even though Strategy has raised the dividend to a high of 11.5% and changed the payout frequency from monthly to semi-monthly, the "de-anchoring" state of STRC has not been effectively repaired... Why is that?

Reasons for De-anchoring: Confidence, confidence, or confidence

The failure of dividend adjustments to work indicates that the risk priced by the market has already exceeded the yield of STRC itself. From current market discussions, market risk concerns mainly focus on two levels.

First, superficial technical factors. Some market participants believe that the recent decline largely stems from leveraged arbitrage funds being forced to deleverage during a market-wide sell-off.

Over the past year, since STRC has traded around $100 for a long time, it attracted a large amount of yield-seeking arbitrage capital. These funds often amplify returns through leverage, earning dividend income while exploiting the arbitrage opportunity of price return to face value. However, as STRC broke below $100 and continued to weaken, some leveraged accounts triggered risk control thresholds and were forced to sell holdings; the falling price then triggered more margin calls, leading to further forced liquidations and a chain reaction. During this process, selling pressure self-reinforced, causing STRC's decline to far exceed normal supply-demand changes.

But if this leverage-driven sell-off alone explains the current market performance, it still seems insufficient. For many investors, deeper concerns lie in Strategy's liquidity reserves.

Earlier this month, JPMorgan released a research report indicating that Strategy has an annual dividend obligation of about $1.7 billion. Based on current cash reserves, this cash only covers about 6.3 months of preferred stock dividends. This has raised market worries about Strategy's promised future liquidity coverage.

In response, Strategy provided a very different explanation. The company emphasized in an official statement that, when considering its massive Bitcoin reserves, it can cover 32 years of dividend payments.

However, the problem is that these two statements are based on different assumptions. JPMorgan focuses on Strategy's cash position, while Strategy's calculation implicitly assumes that the company can raise funds by selling Bitcoin if necessary.

This touches on the market's most sensitive point. Earlier this month, Strategy sold part of its Bitcoin holdings for the first time—only 32 BTC. The company framed this as an "active market desensitization test," mentioning that it would buy back more in the future, but this move still caused significant market shock. The reason is that over the past few years, Strategy and its founder Michael Saylor have conveyed a core narrative—that Bitcoin is a long-term strategic reserve asset, and the company will finance operations through capital markets rather than relying on Bitcoin sales.

Therefore, when the market first saw Strategy actually selling Bitcoin, it inevitably triggered greater concern—if future financing conditions tighten, will Strategy need to further rely on Bitcoin sales to meet dividend obligations? If the answer is not outright negative, investors must reassess the risk level of related securities.

From this perspective, the ongoing "de-anchoring" of STRC actually reflects the market re-evaluating the robustness of Strategy's entire capital structure.

Strategy's buying power may turn into selling pressure

For Strategy, the main impact of STRC's persistent de-anchoring is the weakening of its financing function.

Over the past few years, Strategy's ability to continuously expand Bitcoin reserves depended on raising capital through issuing stocks, convertible bonds, and preferred stocks. STRC is its most important financing tool. When STRC trades well below its $100 target, it signals that the market demands higher risk premiums, and Strategy's financing capacity will temporarily stall.

Going forward, the de-anchoring status of STRC may become an important indicator for market observers assessing Strategy’s risk. If STRC remains persistently discounted, leading to continued financing limitations, and Strategy's cash reserves are depleted, market fears that Strategy might need to sell more Bitcoin to meet dividend payments will intensify.

Once such expectations strengthen, their impact will extend beyond STRC itself. As one of the most significant marginal buyers of Bitcoin in recent years, Strategy's financing capacity and accumulation pace have profoundly influenced market supply and demand expectations. If Strategy's buying power turns into selling pressure, it could exert enormous downward pressure on Bitcoin prices.