Will Strategy be subject to a class action lawsuit? Will STRC be subject to a class action lawsuit? Will fraud be established? Will Bitcoin crash because of this?

Let’s start with the conclusion: it is quite normal for Strategy to be involved in a class action lawsuit, and the probability of STRC being involved in a class action lawsuit in the future is also not low. However, "defendant" and "fraud established" are two different things. Even if they are a defendant, it does not mean that Strategy will be forced to sell Bitcoin: native, let alone triggering a crash.

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Firstly, in the U.S. capital markets, as long as the stock price drops enough, investors suffer significant losses, and the company’s rhetoric is aggressive enough, plaintiff law firms will look for angles to sue. Therefore, companies like Strategy are indeed more prone to being targeted because Saylor’s expressions have always been very assertive, and the company’s valuation, financing, and Bitcoin are highly intertwined. Furthermore, MSTR has already been sued for false statements, BTC volatility risks, and non-GAAP metrics.

Therefore, it is not surprising that STRC will be sued in the future.

STRC does indeed have inherent litigation grounds. With a face value of $100 and high dividends, paid monthly or bi-monthly, it looks very much like an income-generating product. Some retail investors may even understand it as a product that can yield stable returns.

However, the risks of STRC are not low. There is no asset collateral, and it is not a principal-protected product. The credit source is Strategy, while the core assets and financing ability of Strategy are deeply tied to BTC prices, mNAV, common stock ATM, preferred stock ATM, convertible bond refinancing, and so on.

Therefore, if STRC continues to decline, retail investors may easily feel that they initially believed this was a stable high-yield product, only to find that even the principal would fluctuate significantly.

But in the U.S., whether fraud can be established does not primarily consider how much $STRC has dropped.

It is quite common for preferred stock to drop below par, especially high-yield, perpetual, credit-linked BTC preferred stock. What truly matters is whether Strategy or Saylor has explicitly stated something similar to —

"Principal protection"

"Low risk"

"Suitable for retirees seeking stable income"

"The price will stabilize around 100"

If plaintiff lawyers can obtain such specific expressions and prove that investors bought in reliance on these expressions, the lawsuit will have more impact.

The problem is that Strategy’s official documents have already disclosed many risks. The dividends of STRC need to be declared by the board before payment, cash dividends are not guaranteed, and the company intends to adjust the dividend rate to bring STRC close to $100 trading, but this goal may fail, and the company can change this intention.

The documents also state that the company may not have enough cash to pay dividends, and future issuance of securities at the same or higher level may also affect STRC prices. These risk disclosures will become an important defensive line making it difficult for Strategy to be defined as fraudulent.

So although the probability of STRC being a defendant is not low, establishing fraud is not that easy. Plaintiffs cannot simply say, "I lost money, so it's fraud"; they must prove that the company has committed significant misrepresentation, significant omissions, investors relied on these statements to buy, and there is a direct correlation between the losses and the misrepresentation.

As for "whether STRC being a defendant will cause BTC to crash," that is even further out of reach. A lawsuit against STRC will undermine confidence, raise financing costs, and may make it harder to sell preferred stock ATM, but the lawsuit itself will not trigger a forced sale of BTC. STRC is preferred stock, not margin loans, and there is no mechanism for mandatory liquidation of BTC once it drops to a certain price.

More importantly, $MSTR is the mainstay of ATM and is also the most crucial component in Strategy’s entire financing model. Therefore, as long as MSTR common stock ATM can continue to be sold, Strategy will still be able to obtain the cleanest capital, because common stock financing won’t add fixed dividends or increase debt principal.

Thus, the relationship between MSTR and STRC with Bitcoin is hierarchical; the risks of MSTR and STRC are primarily built upon Bitcoin as the underlying asset. Only a significant drop in Bitcoin will directly impact MSTR and STRC.

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