Analysis: The STRC price stabilization mechanism has largely failed, and Strategy may need to repurchase STRC to solve the problem.

BlockBeats news, June 27, Farside Investors published an analysis of Strategy (MSTR) preferred stock STRC, stating that STRC's so-called price stabilization mechanism is inherently unstable. The product has an issue price of $100 and is designed with a mechanism to push the price toward $100: if STRC falls below $100, the company can increase dividends to raise the price; if it rises above $100, it can lower dividends to suppress the price. If investors believe Strategy's credit risk has increased, the STRC price should fall, and if the company subsequently increases the dividend rate, it may further weaken the company's credit position and lead to a "death spiral." Furthermore, the coupon is determined at the company's discretion, not an automatic stabilization system, which creates significant uncertainty for investors evaluating STRC.

From a fundamental financial logic perspective, Strategy issuing a perpetual instrument with an 11.5% yield and using the proceeds to buy Bitcoin is a bad trade. Even if Bitcoin's long-term average annual gain reaches 10%, plus long-term inflation of 5%, Bitcoin could still be very successful, but it may not cover the 11.5% annualized cost. If Bitcoin's price falls periodically, the company may also need to sell BTC at low prices to pay interest, resulting in net losses. Assuming STRC's coupon remains at 11.5%, calculated at an 8% discount rate, its fair value is $144, significantly above the $100 issue price. Under this assumption, issuing STRC is a bad trade for Strategy, but investing in STRC may be a good investment. However, STRC is not a fixed-rate perpetual bond; Strategy has the right to reduce the coupon by 25 basis points each month, down to the SOFR rate (currently about 3.6%). Considering this right, the estimated value of STRC is about $55.

STRC is currently around $75, about 25% lower than its $100 target. The price stabilization mechanism is not currently working, and the company has not responded by raising the coupon. This means the mechanism has largely failed, and there is no clear reason for STRC to return to $100 in the future. If the market expects Strategy to gradually reduce the coupon to SOFR, STRC should be close to $55. Strategy's most likely short-term option is to maintain the 11.5% coupon and temporarily not address the STRC discount issue, continuing to pay the coupon by issuing new shares or selling Bitcoin. But it believes this is only delaying the problem. If the company wants to truly solve the problem, the realistic options are mainly two: first, start buying back STRC; second, completely abandon the price stabilization mechanism and reduce the coupon to SOFR. Buying back STRC is likely the most probable outcome, but the company may need some time to succumb to pressure and face reality.