Stock prices fall by 30% in a month, a non-fatal flaw.

Written by: André Beganski

Translated by: Blockchain in Plain Language

Decrypt points out that the strategy announced that flagship preferred shares faced significant selling pressure on Thursday, after the company, which continues to buy Bitcoin, emphasized that it will continue to pay Stretch (STRC) shareholders, leading to a temporary drop in stock price to a historic low.

At the time of publication, STRC had fallen 2.6% to $87.45, rebounding from an intraday low of $82.53.

Although the preferred shares have not returned to the $100 par value since mid-May, the performance of the product itself is cyclical: typically, prices tend to retreat after the ex-dividend date of STRC.

The so-called ex-dividend date means that from this day forward, investors buying the flagship preferred shares of the strategy will no longer receive the forthcoming distribution. By the end of this month, with the next dividend date for STRC approaching, the company is expected to distribute approximately $100 million to investors.

CoinShares Research Director James Butterfill told Decrypt, "The continued weakness of STRC seems less driven by Bitcoin itself and more by market uncertainty over how the strategy will finance and manage its increasing fixed obligations. A Bitcoin rebound would enhance the asset value supporting the strategy but would not automatically increase its discretionary cash."

Last year, cash reserves were established to manage debt and dividends. At the beginning of the year, the company initially prepared $2.25 billion; however, after repurchasing some debt at a discount, the current cash reserves have been adjusted to $1.1 billion.

The design goal of STRC is to trade around the $100 par value. The strategy has indicated that when this preferred share remains below this level for an extended period, the company can stimulate demand by increasing the resurrection rate. For the past four consecutive months, this rate has been maintained at approximately 11.5%.

Mark Palmer, Managing Director and Senior Research Analyst at Benchmark-StoneX, told Decrypt that for this reason, the intensifying weakness of STRC is a systemic result, signaling the company's distress. He stated that when the product's caterpillar rate is actually lower than market levels, its price gradually declines.

Palmer stated, "This structure is working as designed. At the current price levels, we believe STRC offers investors supported total return opportunities: on one hand, there is the current one, and on the other hand, there is a built-in mechanism that drives the price back towards par value."

He added that Benchmark-StoneX analysts expect the strategy to increase STRC's rebound rate in early July, "We expect this phase will support its price moving back towards par value."

As STRC declines, the strategy's common stock is also under pressure. The company's stock price fell to a low of $109.36 on Thursday, hitting a four-month low. In the past month, its stock price has cumulatively decreased by 32%, a larger decline than the drop in Bitcoin prices.

Last month, this trend deepened further. The strategy, headquartered in Tysons Corner, Virginia, decided to sell 32 Bitcoins, cashing out $2.5 million. The company had previously signaled this move, intending to convey a message: it can fulfill its commitment to preferred shareholders to distribute payments by any means necessary.

Butterfill stated, "Previously, the core narrative of the market has been that the strategy continuously accumulates Bitcoin through issuing capital. Merely selling off part to meet distribution obligations also means that this flow of funds has been reset, complicating the overall strategy, but this impact is only temporary."

This sale also raised questions in the market: will this publicly listed company, which holds the most Bitcoin globally, further reduce its holdings in the future? On Wednesday, the strategy responded on X, stating that its holdings argument will determine whether market confidence in STRC is maintained in the coming years.

The company stated, "With our BTC reserves, we have 32 years of liability coverage." This statement is based on its approximately $55 billion Bitcoin reserves, compared to annual liabilities and interest expenses of about $1.7 billion.

Udi Wertheimer, CEO of Taproot Wizards, continuously pointed out on X that if the strategy actually attempts to use its Bitcoin reserves for financing or cashing out, the value it can ultimately achieve as the market gradually digests this stock is likely to be far lower than on the digital front.

According to CoinGecko data, Bitcoin fell below $62,500 on Thursday, with an intraday drop of over 5%. At this price, the total value of the 846,842 BTC held by the strategy is approximately $53 billion. Even so, analysts continue to believe that the current pressure is still a growing pain, not a fatal flaw.

Butterfill stated, "At this stage, I don't think this is a matter of life and death. It indicates that the strategy's financing model is becoming less efficient, and investors are demanding higher returns to be willing to take on this part of the risk."