Author: CJ_Blockchain

BTC has maintained absolute strength in a volatile market, and the active trading of STRC may be one of the reasons for its strength.

Last week, the average daily trading volume of MSTR's preferred stock, STRC, exceeded $300 million, with a peak single-day trading volume reaching $750 million. It has almost become the most liquid preferred stock in the US stock market.

According to the SRC mechanism, last week's trading volume may have brought a potential net buy of about 700 million to BTC.

This article aims to introduce the basics of STRC, its operating mechanism, why it brings buying interest to BTC, and the potential risks.

1. What is STRC preferred stock?

From a financial architecture perspective, STRC is a "debt-like" equity instrument issued to external investors. It breaks down Bitcoin's volatile price movements into credit products with fixed cash flow attributes through tiering.

STRC's four core features:

Short-term high-yield credit: Positioned as a short-term high-yield instrument, offering competitive monthly dividends (currently at an annualized rate of 11.5%).
Perpetual structure: There is no fixed maturity date, the company does not need to bear the "principal repayment" pressure of traditional bonds, and it belongs to permanent capital.
Capital structure preference: Prioritizes common stock in liquidation ($MSTR), providing a safety cushion for debt-oriented investors.
No risk of default: Legally it is an equity, and dividend payments are not mandatory, thus avoiding the company's risk of bankruptcy due to temporary cash flow shortages.

Comparison of MSTR and STRC

2. Price Anchoring Mechanism: STRC's Anchoring and Liquidity Absorption

Strategy used a series of financial leverages to lock the market price of STRC at around $100, thereby establishing a stable financing window.

Key price control tools:

Dynamic dividend adjustment: Strategy employs a reflexive interest rate adjustment mechanism. If the STRC price falls below $99, the company will increase the dividend (by 25-50 bps) to stimulate buying; conversely, it will lower interest rates to curb excessive demand and bring yields back to market equilibrium.
ATM: When the price of STRC is greater than $100, Strategy will issue more STRC at a price of $100 and sell it on the market to absorb the surplus demand in the market, while converting the excess funds into BTC purchasing power.
Redemption Clause: The company reserves the right to redeem STRC at $101. This clause psychologically and financially limits investors' incentive to buy at a premium, ensuring that the price does not deviate from par value.
Tax efficiency optimization: STRC dividends have a "capital return" nature, allowing holders to enjoy tax deferral benefits. This structure reduces the frequency of investor sell-offs and enhances the stability of the $100 price anchor.

Strategy aims to anchor the price of STRC within a narrow range of 99-100 , using this as a cornerstone for large-scale conversion of Bitcoin purchasing power.

3. Structured BTC Value-Added Flywheel: The Transformation from Transaction Volume to Purchasing Power

When the STRC price fluctuates between 99 and 101, trading volume is converted into BTC purchasing power as follows:

Issuing STRC to meet excess demand: When the price of STRC reaches $100 (parity), the company will issue and sell new shares through the STRC ATM program to meet "excess demand" exceeding the current market value. For example, if the trading volume of STRC at $100 is $100 million on a certain day, assuming that 30% of it corresponds to newly issued shares, the company will sell $30 million worth of STRC and immediately buy $30 million worth of BTC.
Balancing leverage: Issuing more STRC effectively increases the company's debt. Currently, MSTR's leverage ratio target is around 33%, meaning that for every $1 increase in debt, a corresponding $3 increase in BTC must be added to the vault. Therefore, with the aforementioned $30 million increase in debt, Strategy needs to add an additional $60 million in BTC.
To fill the gap by issuing MSTR common stock: In order to obtain this additional $60 million of BTC and keep the leverage stable, the company will use ATMs on MSTR common stock to issue and sell $60 million of new MSTR shares, and then use the proceeds to buy $60 million worth of BTC.

Conclusion: According to this mechanism, every $1 of STRC issued will roughly translate into an increase of $3 of BTC in the treasury. Therefore, at parity, a daily trading volume of $100 million of STRC will not only generate $30 million of new STRC, but will ultimately lead to the company purchasing up to $90 million of BTC.

Of course, the core factor here is the time and volume of STRC trading above $100 within the week; for ease of understanding, we've assumed a 30% rate. In reality, we'll have to wait for the announcement from MSTR next week.

This system of flight cannot continue indefinitely; there are currently three core limiting factors:

The price of STRC must reach $100: MSTR is only a seller of STRC when the price is $100. If the price of STRC is strictly below $100, it will not trigger a new issuance and will not translate into new BTC purchasing power.
The common stock's mNAV must be greater than 1x: Strategy's core long-term goal is to increase the Bitcoin per share ratio. Only when MSTR's mNAV is above 1x can selling common stock to buy BTC increase bps; if mNAV falls below 1, selling MSTR for BTC will cause dilution, and the company will avoid using ATMs on MSTR. If there is a situation where demand for STRC is extremely high but mNAV is below 1x, the company can only curb excess demand by reducing the STRC dividend yield.
Long-term BTC price performance (the most fundamental risk): The entire strategy relies on the expectation of long-term BTC price increases (e.g., an annual return of over 20%). If BTC enters a prolonged bear market, STRC may fall below par and continue trading at a discount, and MSTR's mNAV may fall below 1, cutting off the avenue for issuing common stock to pay dividends. In the event of such an extreme scenario, Strategy would have to rely solely on its existing dollar reserves (currently sufficient for approximately 28 months) to pay dividends; if these dollar reserves are depleted, the company would be forced to gradually sell its BTC reserves.

4. Conclusion

Saylor emphasized as early as last year that Strategy is not a simple "DAT" company, but a Bitcoin-backed structured finance company. He is not just a simple BTC believer, but a financial genius.

Every time Bitcoin prices drop, Strategy and Saylor themselves become the subject of the most discussion. Some worry that Strategy will collapse, while others worry that Strategy has bought too much, affecting Bitcoin's decentralization.

But Saylor didn't care; he just wanted to do everything he could to buy BTC.

Strategy spent approximately $22.1 million last week to increase its holdings by 196 BTC

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