STRC's ongoing de-pegging triggers panic; will it lead to Strategy selling off BTC?

Author: Jesse Myers, Bitcoin Treasury Company Smarter Web Company Bitcoin Strategy Director; Translation: Golden Finance Claw Translation

Recently, STRC fell below $85, continuing to decouple from $100.

1. Fundamentals are sound

Under the premise of maintaining the current situation, Strategy has the capacity to continue distributing STRC dividends for up to 32 years; if Bitcoin’s annualized compound growth rate remains around 2%, dividends can be paid permanently.

2. Causes of this STRC plunge: chain liquidation stampede

Over the past six months, the market has generally reached a consensus: STRC volatility has been steadily decreasing, with prices staying stable in the $99 to $100 range for a long time.

This kind of market condition easily attracts leveraged capital. Once investors assume the price will never fall below $95, they will leverage 20 times to buy more STRC, significantly boosting the overall dividend yield of holdings.

This strategy yields considerable returns in good times, but if the market reverses, it will completely collapse.

STRC is a fully market-driven trading asset. As market enthusiasm shifts to SATA and STRC prices weaken, keenly perceptive short hedge funds have taken notice.

These institutions heavily short the asset, pushing down the price, triggering margin calls on large leveraged positions, which then lead to chain liquidations.

Today’s market movement is a typical chain liquidation stampede: prices drop rapidly, further triggering more forced liquidations, creating a vicious cycle.

3. Future market trend projection: the market will self-repair

Arbitrage hedge funds will soon realize that this is an oversold sell-off, and the fundamentals of STRC’s underlying assets have not changed at all, so they will start buying the dip; short positions will realize profits and close, turning into buying pressure; ordinary investors will find an excellent entry point for long-term positioning in STRC.

Entering at the current price, the actual dividend yield is about 13.7%; if the price later returns to $100 and is sold, a 18% gain can be easily achieved.

4. Possible responses by MicroStrategy

Most likely, they will increase the dividend payout ratio on June 30, possibly up to 11.75%, with a maximum of 12%. Investors entering at the current price will see the effective dividend yield rise to 14.2%.

They may also directly buy back STRC shares on the secondary market, with two sources of funds: one is issuing more MSTR stock (currently trading at 1.14 times its net asset value); the other is traditional credit financing, using borrowed funds to accumulate STRC at low market prices.

Once STRC’s price recovers to $100, the company can reintroduce the repurchased STRC shares into circulation. The nearly $15 per share profit margin can be fully used to buy more Bitcoin, increasing MSTR’s equity value without changing the existing leverage multiple.

Saylor (MicroStrategy founder) has undoubtedly already considered this operational logic, and it’s not surprising that the company is already implementing it.

5. Summary

The market is currently in panic, comparing this decoupling to the Terra/Luna collapse years ago, but the two are fundamentally different.

Whether STRC can continue to pay dividends mainly depends on MicroStrategy’s balance sheet—and this financial statement’s fundamentals have not changed at all.

This decline was purely caused by leveraged positions being liquidated in a stampede.

After this event, the market will recognize that digital credit assets normally have extremely low volatility, but because they are freely tradable assets: if a digital credit product remains close to parity with narrow fluctuations for a long time, greedy capital will inevitably keep increasing leverage, laying the hidden dangers of margin calls and sharp price decoupling.

After the stampede, market sentiment will return to rationality, investors will realize that the issuer’s balance sheet is sound and dividend payments will not be interrupted, and the asset price will gradually recover, returning to the parity range.