Key Insights
- MSTR stock price fell sharply as Bitcoin weakness pressured Strategy’s valuation.
- Strategy’s capital structure added dilution and preferred-dividend obligations.
- MSTY offered high distributions but carried substantial capital-loss and distribution risks.
MSTR stock continued underperforming the broader U.S. equity market as Bitcoin weakened and Strategy issued additional shares.
Strategy shares traded near $93 after falling over 50% from their May high near $196. Bitcoin also traded near $63,000, well below its previous record high.
The decline increased attention on income-focused alternatives tied to Strategy. One is the YieldMax MSTR Option Income Strategy ETF, or MSTY.
However, MSTY’s headline distribution rate should not be treated as a guaranteed investment yield. YieldMax reported a 90.51% annualized distribution rate on July 29, while its 30-day Securities and Exchange Commission yield stood at 3.26%.
MSTR Stock Falls as Bitcoin Remains in a Bear Market
The main reason why the Strategy stock has plunged is that Bitcoin has slumped this year. BTC was trading at $62,920 on Saturday, down sharply from its all-time high of $126,300. This retreat has led to a sharp decline in the value of Strategy’s assets.
The crisis has intensified to the point that the company has changed its strategy from never selling its Bitcoin to intensifying its sales. It has sold Bitcoin worth millions of dollars this year, with most of them being at a loss. The average Bitcoin buying price was over $74,000, and the company is now selling its coins at less than $65,000.
These sales are happening because of the need for cash to pay dividends and debt. It pays dividends to preferred shareholders, a process that costs it over $1.7 billion a year.
The company is also raising cash from diluting MSTR shareholders. It is doing that by selling shares, a process that will continue in the coming years. Notably, it is selling these shares and using some of the cash to repurchase the STRC shares in a bid to push its price to par.
Strategy, unlike Tom Lee’s BitMine, invests in Bitcoin, an asset that generates no income. BitMine holds Ethereum, which pays at least 2.8% in annual returns. With its Ethereum buying nearing its end, the company aims to make over $300 million in annual revenue.
Technicals Suggest the Strategy Stock May Have a Bearish Breakdown
The daily chart shows that the MSTR stock price has slumped in the past few weeks, moving from a high of $196 on May 11 to the current $93. It has formed a bearish pennant pattern, a popular continuation sign in technical analysis.
The stock has moved below the lower side of the triangle pattern, confirming the bearish breakout. It has also slipped below the 50-day and 100-day Exponential Moving Averages (EMA).
Therefore, these technicals suggest that the stock will continue falling in the near term. If this happens, it will continue falling, potentially to the year-to-date low of $81.73.
MSTY Distributions Carry Return-of-Capital Risk
MSTY uses options linked to MSTR to generate income from the stock’s volatility. Contrary to a conventional covered-call description, the fund does not directly invest in MSTR shares.
YieldMax said MSTY uses call spreads and other synthetic option positions. Its portfolio also holds U.S. Treasury securities and cash collateral.
The strategy can generate substantial distributions when MSTR volatility remains elevated. However, those payments can contain return of capital.
For example, YieldMax estimated that 97.18% of MSTY’s July 15 distribution represented return of capital. The July 22 payment contained an estimated 8.09%.
Return of capital can reduce the fund’s net asset value over time. It therefore should not be confused with investment income generated from underlying business profits.
YieldMax also warns that MSTY remains exposed to potential MSTR losses. Options premiums may not offset those declines.
Is MSTY Better Than MSTR Stock?
MSTY and MSTR serve different investment objectives.
MSTR provides more direct upside exposure to Strategy and Bitcoin. It does not pay the large weekly distributions offered by MSTY.
MSTY prioritizes current distributions generated through options. That structure can sacrifice part of MSTR’s upside during strong rallies.
It also remains exposed to substantial downside when MSTR falls.
The headline distribution rate therefore does not make MSTY automatically superior to MSTR.
Total return provides the more useful comparison because it combines distributions with movements in the investment’s market value.
During sustained MSTR declines, MSTY’s distributions can partially offset losses. They cannot prevent its net asset value from falling.
During a strong MSTR rally, the option strategy can also limit how much upside MSTY captures.
The choice therefore depends on the exposure sought. MSTR provides stronger directional exposure, while MSTY exchanges some upside potential for weekly distributions.
With MSTR stock near its yearly lows, Bitcoin remains the central variable for both investments. A deeper Bitcoin decline could pressure MSTR and MSTY despite MSTY’s high headline distribution rate.
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