Strategy this time chose the two most expensive paths.

Author: Zhou, ChainCatcher

Over the past six weeks, both of Strategy’s two core securities have experienced a major crisis of confidence. MSTR’s share price fell below $87, hitting a new low since February 2024 and down more than 50% from its high. STRC slid from around par value all the way to a historic low of $74 last Thursday, a 26% discount to its $100 par value.

Public discourse about the world’s largest corporate Bitcoin holder has also shifted from the previous long-termism narrative to widespread questioning of whether its financing model can be sustained.

Just as market concerns kept building, Strategy yesterday rolled out a Digital Credit Capital Framework—turning what had previously been a one-off emergency move of selling coins into a standardized capital-management tool.

How the pressure was gradually solidified

The earliest “hidden fuse” behind this crisis traces back to May 15. Strategy repurchased $1.5 billion of convertible notes due in 2029 in a transaction at an approximately 8% discount. The deal used dollar reserves that were supposed to be earmarked specifically for preferred stock dividends and debt interest payments. As a result, the company’s cash-coverage ability abruptly dropped from the initially promised 24 months to about 6 months.

In the final week of May, Strategy sold Bitcoin for the first time since 2022, disposing of 32 BTC, with the intention of demonstrating that the company can support dividends through asset liquidation. But the signal was interpreted in reverse by the market. For a company long built around a “never sell Bitcoin” narrative, selling coins—even if the size was small—sent the unspoken message that its funding chain was starting to tighten.

Subsequently, the company’s shareholder meeting approved a plan to change STRC dividends to twice per month, and dollar reserves recovered to above $1 billion. Last week, Strategy sold more than 12.66 million shares of MSTR through a common stock ATM, raising net proceeds of approximately $1.15 billion, while the secondary market was still absorbing the new shares.

At the same time, the company’s pace of buying Bitcoin clearly slowed. In the previous two weeks’ fundraising, about half was used to purchase Bitcoin. In the third week, the scale of coin purchases dropped sharply, with most of the funds kept in reserve to pay STRC dividends.

On June 26, STRC fell to its historic low of $74. Data for the same period showed that the 90-day correlation coefficient between STRC and Bitcoin rose to nearly 0.70, the highest level since the product launched in July 2025.

The framework transmits costs downward along the capital structure

On June 29, Strategy filed an 8-K and introduced the Digital Credit Capital Framework. The framework includes hard coverage requirements for dollar reserves, a dynamic assessment mechanism for STRC dividends, a total $2.0 billion share repurchase authorization, and a plan to liquidate BTC for up to $1.25 billion.

The appearance of the Digital Credit Capital Framework essentially transmits the pressure accumulated over the past six weeks downward, step by step, along the company’s capital structure.

Delphi Digital noted in its analysis that when Bitcoin appreciates, costs are borne by common shareholders through preferred stock dividends. Once mNAV falls below 1x, this transmission channel fails, and the company can only pivot to reserves and coin sales. Strategy is currently in that phase.

Image source: X user @bitfish

The first wave of costs is borne by common shareholders. The $1.15 billion ATM fundraising from last week was transferred entirely into reserves, meaning common shareholders are already paying for the solvency of preferred stock—at the cost of equity dilution.

The second step is to establish hard rules for dollar reserves. The framework specifies that this cash reserve can only be used to pay preferred stock dividends and debt interest. Management must maintain at least enough coverage to cover the scale of expected expenditures for the next 12 months. As of June 28, the company’s reserve balance was $2.55 billion. Based on annualized dividend and interest expense of approximately $1.76 billion, the coverage period is about 17.4 months.

The third step is to raise STRC’s annualized dividend yield from 11.5% to 12%, effective July 1. The company also stated that it will comprehensively evaluate the dividend rate on a monthly basis going forward, and it will not raise dividends solely because STRC’s trading price is below par value. This arrangement aims to preserve the attractiveness of preferred stock while also trying to prevent future cash-flow pressure from accumulating excessively.

The fourth step—also the one that drew the strongest market reaction—is that Bitcoin itself is formally included in the capital-management playbook. The board authorized a BTC liquidation plan, allowing the sale of Bitcoin to raise up to $1.25 billion to supplement dollar reserves, pay preferred stock dividends and interest expenses, or fund the share repurchase plan. If you count all those uses—paying dividends and interest, repurchasing preferred stock, and common stock—then theoretically the liquidation amount could exceed $1.25 billion, and any excess would require further board approval.

Notably, Zach Pandl, head of Grayscale Research, recently said that instead of raising the STRC dividend yield by 50 basis points, it would be better to directly sell more than $3 billion worth of Bitcoin to more thoroughly meet cash payment obligations and restore market confidence. This view aligns with the company’s new framework, suggesting that the market had long realized the company’s options are no longer many.

Facing three options—repurchasing STRC, selling Bitcoin, and cutting dividends—Strategy rejected the last one. The two $1.0 billion repurchase authorizations and the coin-sale plan were activated at the same time. Dividends were not cut; instead, they were increased by 50 basis points.

In the short term, raising the dividend rate helps pull STRC back toward par value from a deep discount. But in the long run, a higher dividend rate means the pressure on future cash flows has not truly been reduced. Bitcoin has also officially shifted from a long-term asset that is only bought and never sold into a capital-management tool that can be liquidated under certain conditions.

The market’s attitude is still half-believing, half-doubting

On the day the framework was announced, MSTR closed up 12.6%, and STRC rose in tandem by 12.2%, with the price rebounding to $83.67; both recorded their largest single-day gains in the recent period. However, STRC’s price still trades at a discount of about 16%, and it remains far from the company’s target range of $99 to $100.

Some voices supporting Strategy believe this is a relatively pragmatic crisis-management move. The dollar-reserve coverage capacity has improved significantly from its prior tight state, and introducing a repurchase tool provides preferred stock with an expectation of price support. Benchmark Equity Research reiterated its Buy rating and maintained a $570 price target. Based on MSTR’s Monday closing price of $92.68, this target implies upside of approximately 515%.

In a report, analyst Mark Palmer pointed out that the framework formally grants management the authority to run the capital machine in reverse when market conditions require it, including repurchasing common stock and perpetual preferred stock, liquidating Bitcoin to meet obligations, and pausing the issuance of common stock when the stock price is no longer trading at a premium to net asset value. He believes this means Strategy has become an active manager on both ends of its capital structure, which is a significant positive for shareholders.

But the skeptical camp is equally clear. Crypto KOL @MengLayer noted that turning coin sales from a one-time emergency action into a standardized arrangement weakens not only the narrative tension, but more directly highlights the issue that the current Bitcoin price is already below the company’s average cost basis of about $75.7k. Selling assets within this range to maintain the credit structure is essentially a “sell below cost to supplement liquidity” operation, hardly an easy move.

Previously, Ripple CEO Brad Garlinghouse said that financial engineering itself does not create long-term value; the long-term value of assets ultimately comes from real utility. He believes Strategy’s model over the past year—relying on preferred stock financing to buy Bitcoin—has already had a negative impact on the broader crypto market.

More importantly, this discussion has moved beyond the company level. Galaxy Digital CEO Mike Novogratz said that the recent decline in Bitcoin’s price is primarily caused by the confidence collapse triggered by Strategy. As the world’s largest corporate Bitcoin holder, Strategy’s stock and preferred securities performance has become a key indicator for traders to measure risk across the entire Bitcoin market.

Finally

After the framework was released, the market saw a short-term rebound, but the formal inclusion of Bitcoin as a capital-management option has brought the previously implicit tensions into the open.

Another side of market sentiment is also worth referencing. For the week ending June 26, U.S. spot Bitcoin ETFs recorded net outflows of $1.79 billion, the second-largest single-week net outflow on record, and the streak of net outflow weeks has extended to seven. Worldwide non-mining listed companies’ net purchases of Bitcoin last week were only $14.65 million, down 83% month over month.

Meanwhile, the leveraged MicroStrategy ETFs launched in 2024 (whether long or short) have fallen by more than 90% since inception. Despite earlier inflows totaling tens of billions of dollars, the leverage effect is significantly amplifying losses.

On one side, incremental buying from institutional channels such as ETFs and listed companies has clearly dried up; on the other side, retail investors’ leveraged exposure has been repeatedly crushed.

This new framework may, to a certain extent, ease liquidity and credit problems, giving Strategy more room to maneuver during Bitcoin’s downturn. But whether STRC can truly return close to par value ultimately depends on whether the market believes the company can continue covering this dividend without further dilution or liquidating Bitcoin. A rebound in Bitcoin’s price would make this question much easier to solve.