Bitcoin, MSTR, and STRC are all declining. Can Strategy's Bitcoin "perpetual motion machine" really fail to turn?

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Author: David Christopher, Bankless Analyst

Translated by: Yuliya, PANews

Editor's Note: This article provides an in-depth analysis of the severe financial challenges currently faced by Michael Saylor's Strategy company. The company's operating system is highly dependent on three pillars: Bitcoin, MSTR common stock, and STRC preferred stock, but all three are currently weakening simultaneously. With the sudden increase in pressure from preferred stock dividend payments and the continuous reduction of cash reserves, Strategy finds itself in a dilemma: whether to continue bearing the cost of diluting its stock or to break convention and sell its prized Bitcoin reserves. Below is the detailed translation:

Today, Strategy under the helm of Michael Saylor is experiencing its most severe crisis: Its STRC preferred stock has fallen to around $80, setting a record discount relative to its $100 face value; MSTR's stock price has also continued to decline, falling below $100 for the first time since March 2024; At the same time, the price of Bitcoin has also fallen below $60k.

This crisis did not come out of nowhere; it has been brewing since late May. At that time, Strategy repurchased debt and sold a symbolic amount of Bitcoin to pay preferred stock dividends, then continued to buy Bitcoin even as market confidence in STRC showed cracks. It can be said that today is the moment when all warning signals converge and erupt.

The Three Pillars That Keep This Machine Running

Strategy's structure consists of three interdependent parts: Bitcoin is the reserve asset: It is the third-largest asset globally, with its core selling point being that it "only goes up." However, Bitcoin itself does not generate any output, dividends, interest, or income. Although Strategy can hold it permanently, because dividends on preferred stock must be paid in cash, there must be some mechanism to fill this funding gap. Today, this mismatch between assets and income is undergoing a severe test.

MSTR common stock is the core engine: When MSTR's stock price is bid up to be worth more than the Bitcoin behind it, Strategy can issue more shares to buy more Bitcoin. This premium allows the purchase to increase company value. However, once MSTR's stock price falls, the cost of this strategy increases. Raising $500 million at a stock price of $500 only requires issuing 1 million shares; but if the stock price falls to $50, it would require issuing 10 million shares. The same amount of funding, but ten times the dilution, will undoubtedly greatly weaken the reason for investors to hold MSTR.

STRC preferred stock is the credit pillar: It is a preferred stock with a face value of $100 and pays an 11.5% cash dividend. When the price falls, Strategy can attract buyers by increasing the dividend yield. But for this mechanism to work, investors must believe that dividends will be paid continuously, and currently the "shelf life" of this trust is shortening. STRC is now hovering around $80, which is the market's way of saying, "Want us to treat it as a $100 asset? Then you need to offer much higher yields."

These three parts support each other; if one is damaged, all suffer. When they all weaken simultaneously, the focus shifts from "how much Bitcoin does Strategy actually own" to "does it have enough dollars to fulfill its dividend commitments."

The Current Dilemma

Strategy is currently losing both "trust" and "liquidity" simultaneously, and they are furiously harming each other. As Bitcoin falls, MSTR tends to drop even more severely because the market sees it as leveraged Bitcoin. And the decline in MSTR's stock price makes raising cash by selling stock more difficult, thus pushing all the funding pressure onto the reserve asset.

According to reports, STRC's annual dividend bill has surged from about $300 million in January to about $1.2 billion today, while the company's cash reserves have shrunk significantly due to debt repurchases and Bitcoin purchases. The cash runway to sustain these dividend payments has sharply decreased from over seven years to about 14 months.

This is the predicament the company is currently mired in. Although there is no lack of exits, each one comes with a heavy price:

Continue buying Bitcoin: will further deplete cash reserves, thereby weakening market confidence in STRC. Issue more MSTR common stock: means more severe equity dilution, which will cause investors to lose motivation to hold MSTR. Issue more preferred stock: will increase dividend payment obligations, and raising STRC's dividend yield will only make cash drain deeper. Stop paying dividends: absolutely not feasible, as it would completely destroy trust and cause the entire system to collapse. Since the entire structure depends on this, after all calculations, there is actually only one path left: sell Bitcoin.

Why Is Selling Bitcoin a Double-Edged Sword?

Selling Bitcoin can quickly replenish cash reserves. Strategy can use this money to pay dividends, and even buy back STRC at below face value, redeeming $100 worth of claims for about $82. From a financial statement perspective, this is very reasonable. Analysis firm CryptoQuant points out that to restore a 24-month cash runway, Strategy needs about $2.8 billion, which is about $1.4 billion more than its current reserves.

However, this means selling a massive amount of Bitcoin.

In fact, Strategy has already tested this dangerous edge. On June 1, the company announced it had sold only 32 Bitcoins (worth about $2.5 million), which is just a rounding error relative to its total holdings of over 840k Bitcoins. But since then, MSTR's stock price has plunged about 38%.

Investors are willing to hold MSTR precisely because the company almost never sells its assets. This was supposed to be a leveraged long-term bet on hoarding Bitcoin in the vault forever. However, the moment Strategy starts selling Bitcoin to pay its own preferred stock dividends, its vault is no longer sacrosanct but becomes a source of funds to keep the upper structure running. This completely changes expectations about future funding shortages: if a $2.5 million sale is acceptable, then larger sales are no longer a pipe dream.

Moreover, selling Bitcoin now would turn paper losses into actual losses. CryptoQuant estimates that on Bitcoins purchased between 2024 and 2026, Strategy is currently sitting on about $10.6 billion in unrealized losses. If held, these losses are only theoretical; but if sold near current prices, the losses will be locked in. However, this cleanest solution is precisely the move that most validates market panic.

To be clear, this does not mean Saylor will dump all his chips tomorrow.

Strategy still has cash on hand, can still issue more stock or raise STRC's dividend, and Bitcoin still has the potential to bounce back. So, this machine is not completely broken today.

However, the road ahead is clearly getting darker. Looking back at a series of operations since late May: debt repurchase, symbolic sale, stock issuance, continued Bitcoin purchases, yet STRC continues to fall. All signs indicate that this structure has exhausted its means of easily coping with the crisis.

On the bright side: if Bitcoin surges, MSTR's stock price recovers, STRC's yield attracts buyers again, and the entire flywheel spins rapidly once more. But if a structure must rely on diluting equity, increasing dividends, or selling assets to maintain investor trust, then it has essentially lost its former luster.

On the dark side: although Strategy bought some breathing room by issuing more shares and buying more Bitcoin, the dividend bill is compounding. The most obvious self-rescue method is simply "stop buying and accumulate cash," but this would inevitably kill the only engine supporting the entire company story.

This is the dilemma Saylor finds himself in:

If he sells Bitcoin, he will personally destroy the grand narrative of "permanent hoarding" that made MSTR what it is today; If he refuses to sell, all pressure will concentrate on equity dilution, dividend payments, and cash reserves.

Neither path is easy, and both may heavily hit market confidence in Strategy, and even affect those treasury companies built on the same concept.

However, sometimes the most painful path forward is the one that must be taken. Hopefully, a better situation will eventually come.