How exactly do MicroStrategy’s STRC preferred shares and MSTR stock affect Bitcoin’s price trend?

Honestly, this is something I wrote a long time ago to share with everyone. Recently, there have been quite a few things going on, so I got delayed. Also, the market conditions were quite suitable for trading, so I went ahead and made some money first. Today I missed the move, and the price fluctuations aren’t very big either. If I stay calm and quiet, I can organize my thoughts and explain this clearly.

STRC is a preferred stock issued by MicroStrategy. On the Nasdaq, its par value is $100, with a fixed interest rate of 11.5% per year. MSTR is the stock—its profit depends on the stock’s price movement. If it drops, you lose; if it rises, you profit. If a crisis occurs, STRC is paid back first, and only then does it come to MSTR.

MicroStrategy’s operating model is to issue STRC. When the stock price is above $100, interest is reduced; when it is below $100, interest is increased. The reduction/increase in interest follows a tiered structure. Typically, if it’s above 101, it decreases by 25 basis points per month; if it’s between 95 and 99, it increases by 25 basis points per month; if it’s below 95, it increases by 50 basis points. Through this mechanism, when the price is above $100, it reduces the amount of STRC people buy; when it’s below $100, it increases the interest, encouraging more people to buy. Then MicroStrategy takes the money and buys Bitcoin, helping stabilize Bitcoin’s price.

STRC is perpetual: it pays interest, but the principal cannot be redeemed. MicroStrategy only needs to have enough money to pay the interest—there is no risk of having to repay the principal. Users can hold it steadily and earn interest. However, if you buy MSTR, there’s a risk of getting stuck if the price falls. MicroStrategy has also issued STRD and STRF, STRK, and STRE. The overall difference is that their interest rates are slightly lower.

Where are the loopholes or risks in this setup? If STRC keeps falling, even though the interest rate increases, nobody buys it. If MicroStrategy’s stock keeps falling, everyone loses money. If the company’s operations don’t generate profits and it doesn’t have money to pay interest, then MicroStrategy would have to start selling Bitcoin to pay the interest, or even buy back stock to stabilize the share price. I can’t figure out the exact outcome here, because I don’t know how far Bitcoin will drop—or how it would actually sell.

Finally, putting it plainly: by early next year, MicroStrategy will not sell Bitcoin, and it will continue to buy. You can relax about that, and just closely monitor MicroStrategy’s moves.