Raising interest rates to protect STRC and selling coins to maintain credit, this time the strategy has chosen the two most expensive paths

Author: Zhou, ChainCatcher

In the past six weeks, the two core securities of Strategy have experienced a significant crisis of confidence. The stock price of MSTR fell below $87, hitting a new low since February 2024, with a decline of over 50% from its peak. STRC dropped from near par value to a historical low of $74 last Thursday, trading at a 26% discount to its $100 par value.

Public opinion surrounding the world's largest corporate holder of Bitcoin has shifted from a long-term narrative to widespread skepticism about the sustainability of its financing model.

As market concerns continued to escalate, Strategy launched a digital credit capital framework yesterday, transforming its previous one-time emergency asset liquidation into a systematic capital management tool.

How the Pressure Built Up Step by Step

The earliest signs of this crisis can be traced back to May 15. Strategy repurchased $1.5 billion of convertible bonds maturing in 2029 at a discount of about 8%, using dollars that were supposed to be reserved exclusively for preferred stock dividends and debt interest. The company's cash coverage ability plummeted from the previously promised 24 months to about 6 months.

In the last week of May, Strategy sold Bitcoin for the first time since 2022, liquidating 32 BTC to demonstrate the company's ability to support dividends through asset monetization. However, this signal was interpreted negatively by the market; a company that had long maintained a narrative of "never selling Bitcoin" suddenly selling, even in small amounts, conveyed the underlying message that its cash flow was tightening.

Subsequently, the company's shareholder meeting approved a plan to change STRC to a bi-monthly dividend distribution, and dollar reserves rose back above $1 billion. Last week, Strategy sold over 12.66 million shares of MSTR through an ATM, raising approximately $1.15 billion, while the secondary market continued to digest the new shares.

Meanwhile, the pace of the company's Bitcoin purchases noticeably slowed. In the previous two weeks of fundraising, about half was used to buy Bitcoin, but in the third week, the scale of purchases sharply decreased, with most funds retained for paying STRC dividends.

On June 26, STRC fell to a historical low of $74. Data from 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 was launched in July 2025.

The Framework Transmits Costs Down the Capital Structure

On June 29, Strategy submitted an 8-K filing, launching the Digital Credit capital framework. This framework includes hard coverage requirements for dollar reserves, a dynamic assessment mechanism for STRC dividends, a total repurchase authorization of $2 billion, and a BTC monetization 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 the company's capital structure.

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

Image Source: X User @bitfish

The first wave of costs is borne by common shareholders. The $1.15 billion raised from the ATM last week was entirely transferred to 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 stipulates that this cash reserve can only be used to pay preferred stock dividends and debt interest, and management must maintain at least the scale to cover expected expenditures for the next 12 months. As of June 28, the company's reserve balance was $2.55 billion, which, based on an annualized dividend and interest expenditure of about $1.76 billion, provides coverage for approximately 17.4 months.

The third step is to raise the annual dividend yield of STRC from 11.5% to 12%, effective July 1. The company also stated that it will comprehensively assess the dividend yield monthly and will not raise dividends solely because the trading price of STRC is below par value. This arrangement attempts to maintain the attractiveness of preferred stock while also trying to avoid excessive accumulation of future cash flow pressure.

The fourth step, which has elicited the most intense market reaction, is that Bitcoin itself has been formally included in the capital management toolbox. The board authorized the BTC monetization plan, allowing the sale of Bitcoin to raise up to $1.25 billion to supplement dollar reserves, pay preferred stock dividends and interest expenditures, or fund repurchase plans. If the uses of paying dividends and interest, repurchasing preferred and common stock are all counted, the theoretical monetization scale could exceed $1.25 billion, with any excess requiring further approval from the board.

Notably, Grayscale Research's head of research, Zach Pandl, recently stated that rather than raising the STRC dividend yield by 50 basis points, it would be better to sell over $3 billion in Bitcoin to more thoroughly fulfill cash payment obligations and restore market confidence. This viewpoint aligns with the company's new framework, indicating that the market has already recognized that the options available to the company are limited.

Faced with the three options of repurchasing STRC, selling Bitcoin, and cutting dividends, Strategy rejected the last one. Two $1 billion repurchase authorizations and the asset sale plan were activated simultaneously, and the dividend was not only maintained but raised by 50 basis points.

In the short term, raising the dividend helps pull STRC back from deep discount to near par value. However, in the long term, a higher dividend yield means that future cash flow pressure has not truly eased, and Bitcoin has officially transformed from a long-term asset that is only bought and not sold into a capital management tool that can be monetized under specific conditions.

The Market's Attitude Remains Skeptical

On the day the framework was announced, MSTR closed up 12.6%, and STRC rose 12.2%, with prices recovering to $83.67, marking the largest single-day increase in recent times. However, the price of STRC still has about a 16% discount, and there is still a considerable distance from the company's set target range of $99 to $100.

Some voices supporting Strategy believe this is a relatively pragmatic crisis management approach. The coverage ability of dollar reserves has significantly improved from the previous tight state, and the introduction of repurchase tools provides an expectation of price support for preferred stock. Benchmark Equity Research reiterated its buy rating, maintaining a target price of $570, which implies about a 515% upside based on MSTR's closing price of $92.68 on Monday.

Analyst Mark Palmer pointed out in his report that the framework formally grants management the authority to operate the capital machine in reverse when market conditions require, including repurchasing common stock and perpetual preferred stock, monetizing Bitcoin to fulfill obligations, and suspending the issuance of common stock when the stock price is no longer at a premium to net asset value. He believes this means that Strategy has become an active manager at both ends of the capital structure, which is a significant benefit for shareholders.

However, the questioning voices are equally clear. Crypto KOL @MengLayer pointed out that turning the sale of Bitcoin from a one-time emergency action into a systematic arrangement not only weakens the narrative tension but also raises a direct issue: the current Bitcoin price is already below the company's average holding cost of about $75,700. Selling assets in this range to maintain credit structure is, in itself, a low-cost asset sale operation to supplement liquidity, which is not easy.

Ripple CEO Brad Garlinghouse previously stated that financial engineering itself does not create long-term value; the long-term value of assets ultimately comes from actual utility. He believes that Strategy's reliance on preferred stock financing to buy Bitcoin over the past year has negatively impacted the overall crypto market.

More importantly, this discussion has transcended the company level. Galaxy Digital CEO Mike Novogratz stated that the recent decline in Bitcoin prices is primarily due to a collapse of confidence triggered by Strategy. As the world's largest corporate holder of Bitcoin, the performance of Strategy's stock and preferred securities has become a key indicator for traders to measure the risk of the entire Bitcoin market.

Conclusion

After the framework was released, the market experienced a short-term rebound, but the formal inclusion of Bitcoin in capital management options has brought the previously implicit tension to the forefront.

The other side of market sentiment is also worth noting. As of the week ending June 26, the net outflow of U.S. spot Bitcoin ETFs was $1.79 billion, marking the second-largest single-week net outflow in history, with the number of consecutive weeks of net outflow extending to seven. The net buying of Bitcoin by global non-mining listed companies last week was only $14.65 million, a decrease of 83% week-on-week.

At the same time, the leveraged MicroStrategy ETF launched in 2024 (both long and short) has seen a decline of over 90% since its launch. Despite billions of dollars flowing in previously, the leverage effect is significantly amplifying losses.

On one side, the incremental buying from institutional players like ETFs and listed companies is clearly drying up, while on the other side, the retail side's leveraged exposure is being repeatedly crushed.

This new framework may help alleviate liquidity and credit issues to some extent, allowing Strategy to seek more turnover space during the Bitcoin downturn. However, whether STRC can truly return to par value ultimately depends on whether the market believes the company can continue to cover this dividend without further dilution or monetization of Bitcoin. A rebound in Bitcoin prices would make this task easier.