Will the STRC issuance price, derived from chatting with ChatGPT, really fall into a death spiral?

Author: Chloe, ChainCatcher

Since Strategy launched STRC at the end of July 2025, Bitcoin has dropped by about 40%, nearly 50%. This preferred stock, designed to "trade at a face value of $100," is now deeply discounted: it hit an all-time low of $82.53 during intraday trading last Thursday, and has only recovered to $88.59 at close, still about 13% below face value. As the discount widens, STRC’s effective yield has been pushed above 12.9%, approaching 13%.

Jesse Myers, Head of Bitcoin Strategy at The Smarter Web Company, commented, "Strategy is fine," while economist Peter Schiff once again called the entire structure a "typical centralized Ponzi."

So the old questions resurface: Will Strategy be forced to sell its Bitcoin? Is the flywheel it relies on for expansion actually a Ponzi scheme?

Is STRC a mechanism designed by AI?

To understand STRC, we need to first discuss a detail easily overlooked but gaining renewed attention amid the decline: the structure was developed through conversations between Saylor and AI.

The controversy stems from a May CoinDesk interview that recently resurfaced on X. In the clip, Saylor admitted to extensively using AI when developing Strategy’s preferred stock product. He said that while working on STRC, he used AI to design things that he couldn't have done alone, spending hours in back-and-forth discussions with AI.

According to him, he constantly threw various structural settings at AI, testing whether unconventional ideas held up legally. When he proposed, "I want a preferred stock that pays monthly dividends and maintains a stable price of $100," AI replied that no one had ever done this in history, but it was entirely legal and entirely reasonable.

Interestingly, as STRC fell below face value and market doubts grew about whether the mechanism could hold, many foreign media outlets turned to AI—including ChatGPT, Grok, and Claude—asking whether STRC could ever return to $100.

Will Strategy sell more Bitcoin?

Not long ago, Strategy sold 32 BTC, worth about $2.5 million, to meet dividend obligations. This amount is negligible compared to its overall Bitcoin reserves, but it proves one thing: when STRC-driven financing efficiency declines, cash obligations can indeed trigger limited selling.

More concerning is the freeze in buying. Strategy’s pace of accumulating Bitcoin has slowed significantly: in April, it spent $2.54 billion in a single week to buy 34,164 BTC; in May, it added another 24,869 BTC for about $2.01 billion. But by June, weekly purchases shrank to around $100 million. For the week ending June 8, it bought 1,550 BTC ($101 million); for the week ending June 15, another 1,587 BTC ($100 million), bringing total holdings to 846,842 BTC.

Additionally, expanding discounts not only push up yields but also have suspended the "at-the-market" (ATM) issuance—a mechanism that sells new shares in batches at current market prices to raise cash—which is a critical component supporting the entire Bitcoin flywheel.

However, bulls are not buying the "death spiral" narrative. Jesse Myers believes that STRC’s sell-off looks more like a deleveraging event than a fundamental deterioration. He estimates that under current conditions, Strategy could sustain STRC dividends for 32 years just from its existing state; and if Bitcoin appreciates by about 2% annually, the obligation could be covered indefinitely. Moreover, the tool of issuing shares hasn't disappeared. Even if ATM is temporarily suspended, Strategy still holds multiple backup financing options, including restarting MSTR common stock issuance, using cash reserves, and only selling Bitcoin if necessary.

On the bear side, Schiff’s classic script prevails. He argues that if Saylor pushes the yield to 13%, he would have to sell more MSTR at larger discounts to raise funds; if he doesn’t raise the yield, STRC prices will continue to fall. In his view, the only way to stop the death spiral is to cancel dividends outright, but that would immediately cripple STRC, dragging MSTR and Bitcoin down with it.

Is this flywheel actually a Ponzi scheme?

Schiff’s accusation is straightforward: STRC is a "typical centralized Ponzi" because its operation depends on Strategy continuously raising new money through further share issuances or outright selling Bitcoin to meet obligations. Even trader DonAlt publicly questioned why STRC’s price action after falling below face value "trades like a Ponzi."

Strategy has not directly responded to such accusations, continuing to position STRC as a preferred stock backed by its Bitcoin DAT strategy. A more specific move was changing STRC’s dividend frequency from monthly to semi-monthly—paying twice a month.

The core argument on the opposing side is "deleveraging." Myers points out that the problem is not the structure itself, but that STRC traded near $99–$100 for an extended period, tempting investors to pile on heavy leverage, with many assuming the instrument would stay above $95. Once the price slipped, margin calls and forced liquidations amplified and accelerated the decline.

Analyst Scott Melker offers another perspective: the discount could attract yield-seeking buyers. Since STRC’s dividends are based on the $100 liquidation preference, not market price, with an 11.5% dividend rate, someone buying at $90 gets an actual yield of about 12.8%, and at $85 about 13.5%. The deeper the discount, the higher the effective yield, and that itself is a lure.

So the question "Is it a Ponzi?" ultimately depends on which explanation the market believes: one says the mechanism can only turn with a constant inflow of new money, where newcomers’ money pays off earlier entrants—a hallmark of Ponzis. The other says the tool itself is fine; it's just that everyone thought it was stable and borrowed heavily to buy it; when the price slipped, they were forced to cut losses, amplifying the drop—a one-time flush, not a problem with the tool itself.

Semi-Monthly Dividends Take Effect—Will Answers Come in June?

As mentioned earlier, since the mechanism was designed by Saylor using AI, many foreign media outlets have thrown the same questions back to AI: Can STRC return to $100? What should Strategy do to rebuild market confidence? ChatGPT, Grok, and Claude all agree that "returning to $100 requires conditions."

ChatGPT believes a return to $100 is still possible but requires stronger market confidence, sustainable dividend coverage, and a Bitcoin price recovery simultaneously. It emphasizes the fastest path to recovery is restoring investor belief that dividends can be maintained without relying on asset sales; further asset sales could worsen confidence.

Grok is the most cautious, stating plainly that "maybe, but it will be extremely difficult." In its view, the market is essentially asking: can the engine feeding this Bitcoin-buying machine keep running? It believes a sustained Bitcoin rally would be the most effective catalyst; prolonged weakness would weigh on both STRC and MSTR.

Claude points out that preferred stocks often recover from discounts to face value, but only if investors regain confidence in the issuer’s ability to meet long-term obligations. "Recovery is possible, but the market needs to see evidence that the structure works under adverse conditions, not just when Bitcoin is rising."

So, is this strategy problematic? Whether it's bearish Schiff, bullish Myers, or top AI models, they all point to the same decisive variable: Can Strategy continue to meet its dividend obligations without selling Bitcoin?

The flywheel hasn’t stopped yet, but it has clearly slowed: ATM issuance is suspended, Bitcoin buying has shrunk from tens of billions per week earlier this year to about $100 million per week in June; the sale of 32 BTC further proves that when share issuance goes poorly, the "sell Bitcoin to pay dividends" door is already open. Whether it’s a Ponzi or a one-time leverage flush depends on whether STRC can return to face value and what Strategy uses to pay dividends.

The most concrete observation point falls on June 30: on that day, STRC’s switch to semi-monthly dividends officially takes effect, but the real focus is the rule that automatically adjusts dividend rates based on price: if the monthly average price is below $95, interest rates are recommended to increase; only if it’s above $99 does it stop. Now that it’s deep below $95, an interest rate hike is almost certain, and the dividend rate has already climbed from 9% in August 2025 to 11.5%.

This is the core of Schiff’s death spiral: the lower the price, the more the mechanism automatically pushes up the dividend rate, the larger the cash bill, ultimately requiring more shares or more Bitcoin sales to fill it. Whether this mechanism is a "stabilizer" or an "accelerator" will be revealed in the upcoming price and interest rate dynamics.