Raising interest rates to protect STRC, 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 undergone 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 a previously one-time emergency action of selling coins 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 reserves that were supposed to be exclusively allocated for preferred stock dividends and debt interest. The company's cash coverage capability plummeted from the originally promised 24 months to about 6 months.

In the last week of May, Strategy sold Bitcoin for the first time since 2022, selling 32 BTC, intending to demonstrate the company's ability to support dividends through asset liquidation. However, this signal was interpreted negatively by the market; a company that had long maintained a narrative of "never selling coins" suddenly selling coins, 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, 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 was still digesting the new shares.

At the same time, the pace of the company's coin purchases noticeably slowed. In the previous two weeks of fundraising, about half was used to purchase Bitcoin, but in the third week, the scale of coin 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 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 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 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 1, this transmission channel becomes ineffective, and the company can only turn to reserves and selling coins. Strategy is currently in this phase.

Image source: X user @bitfish

The first wave of costs is borne by common shareholders. The $1.15 billion raised through 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 dilution of their equity.

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 a coverage level for expected expenditures over 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 expense of approximately $1.76 billion, provides coverage for about 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 the dividend solely because the trading price of STRC is below par value. This arrangement attempts to maintain the attractiveness of preferred stock while avoiding excessive accumulation of future cash flow pressure.

The fourth step, which has elicited the most intense market reaction, is that Bitcoin itself is officially included in the capital management toolbox. The board authorized the BTC liquidation plan, allowing the sale of Bitcoin to raise up to $1.25 billion to supplement dollar reserves, pay preferred stock dividends and interest expenses, or fund repurchase plans. If we consider the uses for paying dividends and interest, repurchasing preferred stock, and common stock, the theoretical liquidation 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. The two $1 billion repurchase authorizations and the coin-selling 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 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 12.2% simultaneously, with prices rebounding to $83.67, marking the largest single-day increase in recent times. However, the STRC price 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 cash reserve coverage capability has significantly improved from its previous tight state, and the introduction of repurchase tools provides expectations for 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, liquidating 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 a proactive manager at both ends of the capital structure, which is a significant benefit for shareholders.

However, the voices of skepticism are equally clear. Crypto KOL @MengLayer pointed out that turning coin sales from a one-time emergency action into a systematic arrangement not only weakens the narrative tension but also raises a more 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 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 coins 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 stock and preferred securities of Strategy have 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 tensions to the forefront.

The other side of market sentiment is also worth noting. As of the week ending June 26, the net outflow of the U.S. spot Bitcoin ETF was $1.79 billion, setting the second-largest single-week net outflow record in history, with the number of 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 hand, the incremental buying from institutional sides like ETFs and listed companies is clearly drying up, while on the other hand, the retail side's leveraged exposure is being repeatedly crushed.

This new framework may 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 near par value ultimately depends on whether the market believes the company can continue to cover this dividend without further dilution or liquidating Bitcoin. A rebound in Bitcoin prices would make this task easier.