A rebound in BTC price can make all problems simpler.Author: Zhou
Source: ChainCatcher
Over the past six weeks, both core securities of the Strategy have experienced a significant loss of confidence. MSTR’s stock price fell below $87, reaching its lowest level since February 2024, a decline of more than 50% from its peak. STRC dropped from near par value to a historic low of $74 last Thursday, trading at a 26% discount to its $100 par value.
Public opinion surrounding the world’s largest corporate Bitcoin holder has shifted from a long-termism narrative to widespread skepticism about the sustainability of its financing model.
Amid growing market concerns, Strategy launched the Digital Credit Capital Framework yesterday, transforming what was previously a one-time emergency coin-selling measure into an institutionalized capital management tool.
How did the pressure gradually become confirmed?
The earliest warning signs of this crisis date back to May 15. Strategy repurchased $1.5 billion in convertible notes due in 2029 at a discount of approximately 8%, using dollar reserves that were meant to be dedicated solely to preferred dividend payments and debt interest. As a result, the company’s cash coverage ratio plummeted from the originally promised 24 months to approximately 6 months.
In the last week of May, Strategy sold Bitcoin for the first time since 2022, offloading 32 BTC, intending to demonstrate its ability to support dividends by liquidating assets. However, the market interpreted this signal inversely: a company long defined by the narrative of "never selling Bitcoin" suddenly doing so—even on a small scale—subtly suggested that its cash flow was beginning to strain.
Subsequently, the company’s shareholders approved a plan to change STRC’s dividend distribution to twice monthly, and the dollar reserves rose above $1 billion. Last week, Strategy sold over 12.66 million shares of MSTR through an at-the-market offering of common stock, raising approximately $1.15 billion in net proceeds, with the secondary market still absorbing the new shares.
Meanwhile, the company's pace of cryptocurrency purchases has significantly slowed. In the previous two weeks, approximately half of the funds raised were used to buy Bitcoin; in the third week, purchasing activity dropped sharply, with most funds retained to pay STRC dividends.
On June 26, STRC dropped to a historic low of $74. During the same period, data showed that STRC’s 90-day correlation coefficient with Bitcoin rose to nearly 0.70, the highest level since the product’s launch in July 2025.
The framework transmits costs down the capital structure.
On June 29, Strategy filed an 8-K form to launch the Digital Credit capital framework. The framework includes a mandatory dollar reserve coverage requirement, a dynamic dividend evaluation mechanism for STRC, a total of $2 billion in repurchase authorization, and a BTC liquidation plan of up to $1.25 billion.
The emergence of the digital credit capital framework essentially transmits the pressure accumulated over the past six weeks down through the company’s capital structure.
Delphi Digital noted in its analysis that during Bitcoin appreciation, the cost of preferred dividends is borne by common shareholders; however, once the mNAV falls below 1x, this transmission channel ceases to function, forcing the company to rely on reserves and asset sales. Strategy is currently in this phase.
The initial costs are borne by common shareholders. The $1.15 billion ATM offering last week was fully transferred to reserves, meaning common shareholders are already paying for the solvency of preferred shares at the cost of equity dilution.
The second step is establishing a strict rule for maintaining a U.S. dollar reserve. The framework stipulates that this cash reserve may be used solely to pay preferred dividends and debt interest, and management must maintain a reserve size sufficient to cover at least 12 months of projected expenses. As of June 28, the company’s reserve balance stood at $2.55 billion, providing coverage of approximately 17.4 months based on an annualized dividend and interest expense of about $1.76 billion.
The third step is to increase the annualized dividend yield of STRC from 11.5% to 12%, effective July 1. The company also stated that it will evaluate the dividend yield on a monthly basis going forward and will not increase the dividend solely because STRC’s trading price is below par value. This arrangement aims to maintain the attractiveness of the preferred shares while avoiding excessive accumulation of future cash flow pressure.
The fourth step—and the one that elicited the strongest market reaction—is the formal inclusion of Bitcoin itself into the capital management toolkit. The board has authorized a BTC liquidation plan, permitting the sale of Bitcoin to raise up to $1.25 billion to supplement U.S. dollar reserves, pay preferred dividends and interest expenses, or fund share repurchase programs. If all these uses—paying dividends and interest, repurchasing preferred and common shares—are included, the theoretical liquidation amount could exceed $1.25 billion, with any additional amount requiring further board approval.
Notably, Zach Pandl, Head of Research at Grayscale, recently stated that instead of raising the STRC dividend yield by 50 basis points, it would be more effective to sell over $3 billion in Bitcoin to more thoroughly fulfill cash payment obligations and restore market confidence. This perspective aligns with the company’s new framework, indicating that the market has long recognized that the company’s available options are severely limited.
Faced with the options of repurchasing STRC, selling Bitcoin, and cutting dividends, Strategy rejected the last one. Simultaneous authorization was granted for $1 billion in share repurchases and $1 billion in Bitcoin sales, and rather than reducing the dividend, it was increased by 50 basis points.
In the short term, interest rate hikes can help bring STRC back toward its par value from deep discount. However, in the long term, a higher dividend rate means future cash flow pressures have not been genuinely alleviated, and Bitcoin has officially transitioned from a long-term buy-and-hold asset to a capital management tool that can be liquidated under specific conditions.
The market's attitude remains skeptical.
On the day the framework was announced, MSTR closed up 12.6%, and STRC rose同步 by 12.2%, rebounding to $83.67, both posting their largest single-day gains in recent times. However, STRC is still trading at approximately a 16% discount, leaving a significant gap to the company’s target price range of $99 to $100.
Some supporters of the strategy view it as a relatively pragmatic approach to crisis management. The dollar reserve coverage capacity has significantly improved from its previously strained level, and the introduction of repurchase tools has created an expectation of price support for preferred shares. Benchmark Equity Research reaffirmed its buy rating and maintained its $570 price target, implying approximately 515% upside potential based on MSTR’s Monday closing price of $92.68.
Analyst Mark Palmer noted in his report that the framework formally empowers management to reverse the capital machine when market conditions warrant, including repurchasing common and perpetual preferred shares, liquidating Bitcoin to meet obligations, and suspending common share issuance when the stock price no longer trades at a premium to net asset value. He believes this means Strategy has become an active manager at both ends of its capital structure—a significant benefit for shareholders.
But the skepticism is equally clear. Crypto KOL @MengLayer pointed out that turning coin sales from an emergency one-time measure into a formalized policy undermines not only narrative tension, but more directly, with Bitcoin’s current price below the company’s average holding cost of approximately $75,700, selling assets at this level to maintain credit structure is essentially an operation of selling assets below cost to cover liquidity—hardly a light undertaking.
Ripple CEO Brad Garlinghouse previously stated that financial engineering alone does not create long-term value, as the long-term value of assets ultimately stems from real utility. He believes that Strategy's reliance on preferred stock financing to buy cryptocurrencies over the past year has had a negative impact on the broader crypto market.
More importantly, this discussion has moved beyond the corporate level. Mike Novogratz, CEO of Galaxy Digital, stated that the recent decline in Bitcoin’s price stems primarily from a loss of confidence triggered by Strategy. As the world’s largest corporate Bitcoin holder, Strategy’s stock and preferred securities have become a key indicator for traders assessing overall Bitcoin market risk.
Finally
After the framework was released, the market experienced a short-term rebound, but the official inclusion of Bitcoin as a capital management option has brought previously implicit tensions to the surface.
The other side of market sentiment is equally worth noting. For the week ending June 26, U.S. spot Bitcoin ETFs experienced a net outflow of $1.79 billion, marking the second-largest weekly net outflow on record, with consecutive weeks of net outflows extending to seven weeks. Last week, global non-mining public companies made a net purchase of only $14.65 million in Bitcoin, an 83% month-over-month decline.
Meanwhile, the leveraged MicroStrategy ETFs launched in 2024—both long and short—have each declined more than 90% since their inception, as leverage has significantly amplified losses despite billions of dollars in prior inflows.
On one side, institutional buying pressure from sources like ETFs and public companies has clearly dried up; on the other, retail investors' leveraged positions have been repeatedly crushed.
This new framework may somewhat alleviate liquidity and credit concerns, giving the Strategy more breathing room during Bitcoin’s downturn. However, whether STRC can truly return to near par value ultimately depends on whether the market believes the company can consistently cover this dividend without further dilution or liquidation of its Bitcoin holdings. A rebound in Bitcoin’s price would make this challenge easier to solve.