Original author: @100y_eth

Translation by: AididiaoJP, Foresight News

Given the current situation, there is no reason for STRC to return to 100 dollars.

The mechanism originally designed to maintain STRC trading close to 100 dollars is as follows: if the STRC price is below 100 dollars, the dividend yield will increase due to the price decline, and the Strategy company may also raise the nominal dividend rate to over 11.5%. Since Strategy has the right to buy MSTR at 101 dollars per share, a price increase above that level will be restrained. If Strategy goes bankrupt, holders of STRC have a claim for 100 dollars per share plus accumulated unpaid dividends. For STRC to return to 100 dollars, the aforementioned mechanism needs to function properly.

Dividend rate adjustments cannot be the fundamental solution

First, increasing the dividend rate is unlikely to be effective for two reasons. A higher dividend rate would become a financial burden for Strategy, potentially worsening its financial condition. From the investor’s perspective, providing a high dividend rate in an unfavorable environment may also become a negative psychological factor.

The adjustment and payment of the dividend rate are not obligations of STRC, but depend on the board’s decisions; therefore, there is significant uncertainty from the investor’s viewpoint.

Since STRC pays dividends at a fixed amount per share rather than based on the principal ratio, it should be a product that allows dividend investors not to worry too much about the principal. Nevertheless, there is still a high degree of uncertainty as to whether Strategy can continue to pay dividends to STRC investors at the current level.

Of course, Strategy currently has dollar reserves to cover bond interest and preferred stock dividends for about 9.8 months; if it sells its Bitcoin holdings, it could sustain for about 30 years. However, this does not fundamentally solve the uncertainty around dividends.

The dollar reserves cover only 9.8 months, far from a long-term solution. To extend this period using dollar reserves, Strategy would need to continue issuing MSTR through ATMs. However, at the current mNAV level, this would inevitably dilute the book value per share, which is not sustainable for Strategy.

Even if the dollar reserves are depleted, extending the lifeline of Strategy and STRC by selling Bitcoin fundamentally contradicts the company's mission and essence. It would reduce the attractiveness of STRC and MSTR as investment products and accelerate the negative feedback loop.

Unless redemption occurs, the claim of 100 dollars per share is meaningless

If the STRC price is guided solely by adjustments to the dividend rate, then the figure of 100 dollars has no practical significance. The fundamental reason STRC could be guided to trade close to 100 dollars is that once Strategy goes bankrupt, STRC has a claim on remaining assets of 100 dollars per share plus accumulated unpaid dividends.

In simple terms, STRC currently trading at 75 dollars looks like it is being sold at a huge discount of 25% below the regular face value of 100 dollars. But is that really the case?

The key is that STRC is not a bond, but a preferred stock. Bonds have maturity dates, and if STRC were a bond, investors would receive 100 dollars per share at maturity, making the current level of discount less likely to occur.

Unless Strategy announces a buyback of STRC separately, the only way for STRC investors to get their principal back is if Strategy goes bankrupt.

There are two issues here. Contrary to the widespread view in the community, Strategy is not likely to go bankrupt easily. The company has a net leverage ratio of only 11%, and its multiplier (the ratio of bonds and preferred stock to Bitcoin reserves) is also only 44%. For the company to truly go bankrupt, its leveraged positions from bonds must collapse. This is unlikely to happen unless the price of Bitcoin falls to around 11% of the current level (about 6600 dollars). Even considering the price drop from selling, it's improbable unless Bitcoin approaches around 10,000 dollars.

Even if it does go bankrupt, it remains a problem. If Strategy goes bankrupt, it means that only 11% of the leveraged position has collapsed. In such a severe situation, preferred stock investors, including STRC holders (whose claims are inferior to bondholders), are likely to find it difficult to receive the remaining assets adequately.

In other words, for STRC investors to receive 100 dollars per share, two conditions must be met: 1) Strategy must go bankrupt; 2) If such a bankruptcy scenario occurs, they are likely to have difficulty obtaining the full 100 dollars.

STRC has no reason to trade close to 100 dollars

Strategy set the STRC dividend rate at 11.50% based on the 100 dollar price. However, the price of STRC is determined by the market. The claim on remaining assets of 100 dollars per share seems to have little significance in the worst-case scenario, and the long-term sustainability of dividend rate adjustments and payments is also questionable.

STRC is currently trading at around 75 dollars. At this price, the effective annualized dividend yield reaches 15.3%. This means that investors require about 3.8% more yield due to bankruptcy risks and uncertainties in dividend payments compared to the originally set 11.5% dividend rate.

If investors think that a 20% dividend yield is reasonable considering the risks of STRC, then STRC might trade at 57.5 dollars. Since fair price depends on market uncertainties and investor psychology, no one can say for sure what it should be.

In the current situation, STRC has no reason to trade near 100 dollars, and its price will converge towards the market price that investors assign to it.

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