After the STRC crash, how much longer can MicroStrategy's model last?

Recently, MicroStrategy's STRC de-pegged, dropping from a stable $100 to $75. Many people think MicroStrategy is heading into a death spiral.

In the May 6th article "If a Whale Targets MicroStrategy, This Could Be a 'Blatant Hunt'", we actually mentioned that STRC is just a perpetual preferred stock. MicroStrategy did not promise that it must stay at $100 or compensate if it falls below $100.

The way it stabilizes the stock price is by issuing dividends. When the stock price drops, it increases the dividend. If you think 11.5% is too low, then 12%; if 12% doesn't work, how about 15%? At the right price, someone will always buy.

So the current de-pegging of STRC is mainly due to widespread panic in the market, with fears that MicroStrategy might collapse and be unable to pay dividends, leading to panic selling. But even if MicroStrategy does not pay dividends, can STRC holders sue?

"Perpetual preferred stock" means it takes priority over MSTR common shareholders in dividend distribution. If the company declares a dividend, STRC must be paid before MSTR shareholders. If the company does not declare a dividend, MicroStrategy can choose not to pay, which is not illegal.

The only illegal scenario is if the board declares a dividend, enters the legal process, and then refuses to pay. In that case, STRC holders can sue.

If MicroStrategy says, "I promised to pay but cannot now—can I delay? I will pay later," that is not illegal.

If the company later improves operations and says, "I want to distribute dividends to common shareholders," it must first make up the unpaid STRC dividends before paying common shareholders.

So based on this mechanism, even if STRC falls to zero, it does not affect MicroStrategy. At most, MicroStrategy can no longer use this method to raise funds to buy Bitcoin in the future.

Does Strategy (sic—MicroStrategy) have a plan to rescue STRC?

Currently, there is no separate bailout plan for STRC. Only in early June did they change the dividend payment frequency to twice a month. There has been no official repurchase or market-making.

Does MSTR currently have a risk of default?

In the April 29th article "What Is MicroStrategy's 'Liquidation Line'?", we calculated that if Bitcoin falls below $20,000, its Bitcoin reserves would be worth less than its debt, potentially leading to liquidation. Currently, the probability of Bitcoin hitting $20,000 is extremely low.

MicroStrategy currently has $2.3 billion in cash. STRC's market cap is $30 billion. The annual dividend is $30 billion * 11.5% = $3.44 billion. So the cash can sustain about half a year. If Bitcoin does not rise within six months, they will have to sell Bitcoin!

Therefore, the safest course for MicroStrategy now is to stop buying Bitcoin, stop issuing more STRC preferred shares, and sell some Bitcoin gradually—dumping a little each day. Otherwise, if they have to sell billions at once in six months, the market selling pressure could cause a sharp drop in Bitcoin, triggering market panic.

Another very important point: they must lower the STRC dividend. The current 12% dividend is definitely a huge drag. After all, they make money from stock trading, not from real business revenue (the actual software business revenue is negligible). This "robbing Peter to pay Paul" model is unsustainable. As we all know, any product that promises a stable return of over 10% with no barrier to entry should be treated with extreme caution. History has many examples—products with a stable annualized return above 15% are "extremely risky" (various "XX Bao" incidents in history).

So I think if MicroStrategy truly wants to survive long-term, it must find ways to reduce the dividend to below 10% to be safe. Even if Bitcoin keeps rising in the future, as the scale grows, growth may slow. Don't plant a landmine for yourself. If financing costs stay high, this high-dividend model will never be the optimal solution and will remain a risk worth watching closely.