Written by: André Beganski
Compiled by: Blockchain in Plain Language
Decryption noted that the strategy announced significant selling pressure on the flagship preferred shares on Thursday, with the stock briefly hitting a new low after the company, which has been consistently buying Bitcoin, reiterated its commitment to continuing payments to Stretch (STRC) shareholders.
At the time of the rocket launch, STRC fell 2.6% to $87.45, rebounding from the intraday expected low of $82.53.
Although the preferred shares have not returned to their $100 par value since mid-May, the product's performance is cyclical: prices typically decline after STRC's dividend ex-date.
The ex-dividend date is the date from which investors purchasing this flagship preferred stock will no longer be eligible for the upcoming distribution. By the end of this month, as STRC approaches its next dividend payment date, the company is expected to distribute approximately $100 million to investors.
James Butterfill, Head of Research at CoinShares, told Decrypt: "STRC continues to weaken, appearing less driven by Bitcoin itself and more by market uncertainty about how the fixed obligations of the strategy will be funded and managed over time. A Bitcoin rebound would increase the value of assets underpinning the strategy, but it wouldn't automatically increase its available cash."
Last year, a cash reserve was established to manage debt and dividends. At the beginning of the year, the company initially set aside $2.25 billion; however, after repurchasing a portion of the debt at a discount, the current cash reserve has been adjusted to $1.1 billion.
The design goal of STRC is to trade around a $100 par value. The strategy has indicated that when this preferred stock trades below this level over the long term, the company can stimulate demand by increasing the redemption rate. For the past four consecutive months, this rate has remained at approximately 11.5%.
Mark Palmer, Managing Director and Senior Research Analyst at Benchmark-StoneX, told Decrypt that this weakness in STRC is therefore a mechanical outcome and a signal that the company is in trouble. He said that when a product’s Caterpillar rate is actually below market levels, its price should gradually decline.
Palmer said: "This structure is working exactly as designed. At current price levels, we believe STRC offers investors a supported total return opportunity: on one hand, current yield, and on the other, a set of built-in mechanisms that drive the price back toward par value."
He added that analysts at Benchmark-StoneX expect the strategy to increase STRC's rebound rate in early July, "We anticipate this phase will support its price moving back toward par."
As STRC declined, the company's common stock also came under pressure. The stock hit a four-month low of $109.36 on Thursday. Over the past month, its share price has fallen by 32%, a sharper decline than the pullback in comparable Bitcoin prices.
Last month, this trend intensified as the company, headquartered in Tysons Corner, Virginia, strategically sold 32 bitcoins, cashing out $2.5 million. The company had previously signaled this move to convey a message: regardless of the method, it is committed to fulfilling its obligation to pay distributions to preferred shareholders.
Butterfill stated: "Previously, the core narrative in the market was the strategy of continuously accumulating Bitcoin through capital issuance. Positioning merely involved selling a portion to meet distribution requirements, which means the flow of funds has been reset and has made the overall strategy more complex—this impact is only temporary."
This sale has also raised questions in the market: Will this company, the world’s largest publicly traded holder of Bitcoin, further reduce its holdings? On Wednesday, Strategy responded on X, stating that its holding strategy will determine whether confidence in STRC is maintained over the coming years.
The company stated: "With our BTC reserves, we have 32 years of liability coverage." This claim is based on its approximately $55 billion in Bitcoin reserves compared to annual liabilities and interest payments of about $1.7 billion.
Udi Wertheimer, CEO of Taproot Wizards, continues to point out on X that if the strategy truly attempts to finance or liquidate using Bitcoin reserves, the value it ultimately realizes is likely to be significantly lower than the nominal figure as the market gradually absorbs the shares.
According to CoinGecko data, Bitcoin fell below $62,500 on Thursday, dropping more than 5% intraday. At this price, the 846,842 BTC held in the strategy are valued at approximately $53 billion. Even so, analysts still view the current pressure as growing pains rather than a fatal flaw.
Butterfill said: "At this stage, I don't think this is a matter of life and death. It indicates that the funding model for the strategy is becoming less efficient, and investors are demanding higher returns to take on this level of risk."