Strategy approaches critical resistance point

Author: Prathik Desai; Source: TokenDispatch; Translation: Shaw, Golden Finance

On May 21, I proposed in the article "Strategy's Capital Alchemy" that the STRC preferred stock debt product issued by this company, which holds a massive Bitcoin inventory, would first come under pressure and deform, but would not directly collapse. I wrote at the time that STRC's design benchmark trading price was $100, and under bearish conditions, the price would come under pressure and weaken, but it would likely hold steady.

Five weeks later, STRC's price has now fallen to $74, a 26% decline from par value. I must admit, this is far beyond a slight pressure, especially when considering the various supporting indicators of this debt product.

Just ten days after I published that article, Michael Saylor sold 32 bitcoins, then worth approximately $2.5 million. This was the first time in years that Strategy had reduced its own Bitcoin holdings. Although this sale had virtually no material impact on its $65 billion Bitcoin position, the market environment in which Strategy operates has undergone a dramatic shift, and this will profoundly change the company's own development landscape.

In my previous analysis, I conducted stress tests on various bearish scenarios, all of which could shake the core logic of this debt product and break the positive self-reinforcing cycle that kept STRC's price stable at par. But the speed and impact of some bearish scenarios exceeded my expectations.

This article will sort out the complete triggers for this decline and predict STRC's subsequent price trend.

Even though it increased its Bitcoin holdings by 3,600 coins over the past four weeks, the total market value of Strategy's Bitcoin holdings still shrank by 25%. During this period, the total market cap of the broader crypto market and Bitcoin itself both evaporated by about 20%, and these were the underlying core logics that supported the market's bullish view on STRC.

STRC's price had never fallen below $90 since issuance, but from $99 on June 1 to $74 on June 26, the product's price declined day after day for consecutive days.

Implied volatility is a forward-looking indicator reflecting market sentiment and future expectations. In the three months before the company's first Bitcoin sale, this indicator broke through the 10% level only seven times. But in just 19 trading days, its implied volatility surged nearly tenfold, from 8.22% to 78%.

Putting the numbers aside, the market's perception of STRC has undergone a transformative shift in the past month. Unlike Bitcoin's high volatility, STRC was originally positioned as a financial product with stable movement and very low volatility. Strategy packaged it as a credit instrument that would trade stably around $100 and pay dividends consistently, and the previous months' performance indeed matched this expectation. But over the past 30 days, STRC's daily closing prices have continuously declined; this product, which had been steady around $100 for months, now trades at just $74. Its 30-day historical volatility soared from 4.3% to 34.6% in one month.

Although Strategy has not missed a single STRC dividend payment to date, the core change is this: Now, the product's volatility has exceeded that of Bitcoin, the risk asset it was supposed to help investors avoid. The stable returns promised to potential investors have now become completely unfulfillable.

Impact on Strategy

The most direct consequence is that the company's financing machine, which it relied on for expansion, has come under pressure.

When STRC's price was maintained near its $100 par value, Strategy could issue new shares through its at-the-market (ATM) program, use the proceeds to increase Bitcoin holdings, and this positive cycle was the foundation of all the company's expansion moves. But now that the market is only willing to pay $74 for a $100 par value share, the company still has to pay an 11.5% dividend based on the $100 par value, yet it only receives $74 in cash. No company would willingly incur such a loss, so the ATM program has been completely suspended, and the growth flywheel of continuously accumulating coins with preferred stock funding has stopped.

Between March 18 and May 18 this year, the nominal total value of outstanding STRC preferred shares doubled, from $5 billion to $10.5 billion, but the company has not issued any additional shares since then.

In my previous article, I outlined the positive cycle logic: Issue STRC → Increase Bitcoin holdings → Bitcoin rises → Market confidence improves → Issue more STRC. At that time, I considered the reverse collapse only as an extreme tail-risk scenario, and that was less than six weeks ago.

But STRC holders have priority dividend rights, and the company must still use its cash reserves to pay dividends, or in extreme cases, sell its Bitcoin holdings to do so.

In May, Strategy's cash reserves fell to $871 million, a 60% decline from the $2.25 billion when my previous article was published. Earlier, the company spent approximately $1.38 billion in cash to repurchase convertible notes with a total principal of $1.5 billion maturing in 2029. Its cash reserves subsequently recovered to about $1.4 billion, including expected proceeds from shares already sold under the ATM program but not yet settled.

In contrast, the annualized preferred stock dividend expense for the entire STRC product has exceeded $1.2 billion; when combined with payment obligations on other debt instruments, the overall payment pressure increases further.

Given its liquid Bitcoin holdings, Strategy is still far from insolvency, but the real core crisis is not about book numbers; it's about the continuous loss of investor confidence in its various financial products.

How to Restore Investor Confidence

There is a growing view in crypto community forums that Strategy should significantly reduce its Bitcoin holdings to restore market confidence, but this is actually a double-edged sword.

STRC's underlying design goal is to trade stably at $100 par value, and the company's entire capital cycle of relying on issuance to raise funds and paying dividends is entirely based on STRC's market price being close to par.

If Strategy wants to restore investor confidence in STRC and pull its price from $74 back to $100 par, it must raise the dividend yield to make the product more attractive. But raising the dividend yield means dividend expenses will increase simultaneously. Based on the current outstanding STRC size, for every 50 basis points increase in the dividend, the annual payment burden would increase by approximately $50 million.

Raising the dividend might attract enough buyers to take STRC off the market, but if so, the company would have to repeat what it did on June 1: sell more Bitcoin holdings to pay dividends.

The payment obligation is just a bookkeeping calculation, but selling some Bitcoin holdings would create a significant psychological dilemma for Strategy.

In 2025, dozens of companies copied Strategy's Digital Asset Treasury (DAT) operating model: issue stock, buy Bitcoin, with stock prices trading at a premium to net asset value for a long time, and relying on this valuation premium to continue financing. And after Bitcoin's sharp price drop, almost all copycat companies stopped accumulating coins, and the valuation premium completely disappeared.

Back then, Strategy was able to weather that market cycle precisely because it never sold Bitcoin. The "never sell" promise was the foundation that supported investor confidence in the entire capital structure.

But now that promise has been completely reversed. Although Strategy as a whole is still net accumulating Bitcoin, Michael Saylor explicitly stated during the company's Q1 earnings call that the company might sell Bitcoin holdings to pay dividends.

In the month following that statement, investors did not show obvious concern. But on June 1, selling just 32 bitcoins — less than 0.004% of its total Bitcoin holdings — severely damaged market confidence.

Since that sale of 32 bitcoins, STRC's price has fallen 25%, and the company's common stock, MSTR, has plunged 45%. In fact, MSTR's stock price has fallen below $100 for the first time in over two years.

This is precisely the psychological dilemma facing potential investors.

Strategy could indeed solve its short-term dividend payment problems by selling Bitcoin, and it is feasible from a financial book perspective. The company holds a massive Bitcoin position; selling only a small portion to pay preferred stock dividends would not put it at risk of insolvency. But the valuation of a public company is never determined solely by book data. The core narrative that a company projects externally profoundly affects the valuation the market gives it. Strategy's core narrative has always been: Continuously accumulate coins through bull and bear markets, never sell during downturns, and continuously increase Bitcoin holdings through capital markets.

Once the company significantly breaks the "never sell" principle, every time cash reserves shrink and STRC's price falls, the market will ask the same question: "Will they sell Bitcoin again?"

This is the root of the dilemma: If Strategy insists on not selling coins, investors will worry about where the money will come from to pay dividends; but if it chooses to sell, investors will question whether the core narrative of "Bitcoin holdings will never be touched" has been invalidated. The former impacts cash flow fundamentals, while the latter shakes the long-term story that investors trusted when buying the company's assets.

This is exactly the self-reinforcing loop I mentioned in my previous article. Even if the company's fundamentals appear stable, the market confidence that supports the stable operation of products like STRC can also destroy it. Even now, sufficient cash reserves and Bitcoin holdings can keep the company far from bankruptcy risk, but the continuous erosion of investor confidence alone can lead to a situation where no one is willing to buy STRC, causing its price to free-fall.

In 2025, dozens of DATs that imitated Strategy failed due to exactly the same logic. Once these coin-holding companies sold Bitcoin during a market downturn, the valuation premium immediately disappeared, the issuance financing channel completely closed, and the stock's valuation directly turned to a discount. If Strategy repeats this mistake with STRC, it will replicate the tragedy of 2025, and this time it will damage its own entire capital structure.

Looking Beyond Strategy's Crisis

Setting aside this specific company, this incident also reveals the chain effects that the entire industry may face beyond the STRC product itself.

Over the past month, the total market cap of the crypto market has evaporated by about 20%; Bitcoin ETFs have seen net outflows for seven consecutive weeks, the longest outflow cycle since the product's launch. The Fed has turned hawkish, and the May Personal Consumption Expenditures (PCE) price index inflation reading reached 4.1%. Although these factors are not directly related to Strategy, the collapse of STRC's price coinciding with such a macro environment has created a mutually reinforcing negative cycle, which is undeniable.

Now that major exchanges provide great convenience for ordinary retail investors to gain Bitcoin exposure, funds may also be rotating: investors are withdrawing from indirect Bitcoin instruments like ETFs, DATs, and Strategy, which have higher costs and weaker stability.

With the popularity of perpetual contracts, retail investors can easily trade with leverage using only a small margin. In the past, investors who wanted to leverage Bitcoin had to rely on MSTR stock; now, perpetual contracts can fully replace this need. The correlation between MSTR, STRC, and Bitcoin's price continues to weaken, while Bitcoin perpetual contracts are almost perfectly synchronized with spot prices. Comparing the two, investors naturally prefer perpetual contracts over indirect holdings.

But STRC's current predicament stems from its own logic collapsing. The demand for this product continues to weaken, primarily because its credit narrative has completely broken down. Investors no longer believe that Strategy can maintain this closed loop: using funds raised from issuing the same debt product to pay the product's own dividends. After this cycle mechanism broke, MSTR's stock price was also dragged down. Currently, MSTR's valuation premium over net asset value has almost disappeared, trending towards parity, meaning the market no longer believes this company has additional value beyond its underlying assets.

This logic completely overturns Strategy's previous operating structure. For years, Bitcoin's price drove the company's stock price, the stock price determined the company's financing ability, and the funds raised were used to increase Bitcoin holdings. Now the situation has reversed: The creditworthiness of the debt product influences the stock price, and the stock price in turn affects the market's judgment of the value of its Bitcoin holdings. It's completely upside down.

This raises a question I completely did not anticipate in my previous article: If STRC's trend increasingly depends on Strategy's own credit rather than Bitcoin's market performance, what will happen to the dozens of Bitcoin DAT financial products that followed suit?

SATA, a competing preferred stock issued by Strive, which has the most similar structure to STRC, hit an all-time low of $79 in the same week. SATA has an annual dividend yield of 13%, paid daily. Strive holds approximately 19,800 bitcoins at an average cost of $96,000, which is 60% higher than the current price. The company has no debt, no convertible bond overhang, and no concentrated maturity risk, yet its price still fell below par.

Metaplanet, headquartered in Tokyo, holds over 40k bitcoins and has also issued its own preferred stock product, MARS.

Even SATA, which has a cleaner structure with zero debt, could not hold its par value. This shows the problem is not unique to Strategy. The market may be re-pricing the entire asset class: these products are essentially not Bitcoin substitutes or crypto speculation vehicles, but credit-based debt instruments, naturally carrying the various fragile risks of credit assets.

If everything were just about fundamentals, Strategy would still have a chance to turn things around. Once Bitcoin returns to $80,000, the collateral value narrative would theoretically re-establish itself, and the ATM issuance channel would reopen. But reality is far from that simple.

Even if the total amount of Bitcoin the company plans to sell in the future is far below the daily market's absorption capacity, the mere collapse of investor confidence is enough to trigger panic and cause a sell-off across the entire asset class.

_Translator's note: According to the latest news, Strategy has announced a new capital framework, which includes a $1 billion digital credit security repurchase program to optimize its capital structure. At the same time, the company's board of directors approved a Bitcoin monetization plan, aiming to raise up to $1.25 billion through related operations to bolster its dollar reserves. Michael Saylor stated that under this plan, the board has authorized Strategy to sell Bitcoin from time to time for three main purposes:  _

• Supplement dollar reserves: Generate up to $1.25 billion in additional proceeds to bolster dollar reserves (current reserve balance is approximately $2.55 billion, which already includes some unsettled ATM sales).

• Pay preferred stock dividends and interest: When it is cheaper than issuing new shares or other financing, use BTC sale proceeds to pay dividends/interest, or replenish reserves after payment.

• Support repurchases: Provide funding for the aforementioned preferred and common stock repurchase programs (including related taxes and transaction fees).

In addition, according to Strategy's 8-K filing with the U.S. SEC, Strategy will increase the annual regular dividend rate on its Floating Rate Series A Perpetual Preferred Stock ("STRC") to 12.00% for semi-monthly dividend payment periods starting on or after July 1, 2026. This adjustment does not affect previously declared but unpaid STRC dividends.