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▲ Strategy (MSTR), Bitcoin (BTC), STRC/AI Generated Image
The ambitious preferred stock STRC launched by Strategy (MSTR) plummeted by 25%, a decline attributed to a misjudgment regarding excessive leveraged investment.
According to crypto media outlet BeInCrypto on September 23rd (local time), Strategy CEO Phong Le stated that the company underestimated the amount of borrowed funds flowing into the $9.3 billion preferred stock STRC. Designed to pay a 12% annual dividend and trade around a base price of $100, STRC fell to the $75 level by the end of June before recently recovering to around $99. CEO Le explained that based on the stable price trend, individual investors engaged in arbitrage, taking out loans at around 6% annual interest collateralized by Bitcoin (BTC) to target a 12% dividend yield.
The problem arose when Bitcoin prices came under downward pressure. Leveraged investors, facing the risk of collateral liquidation, were forced to either make additional Bitcoin deposits or dispose of STRC, triggering a chain sell-off. CEO Le confessed, “I never expected such a massive amount of leveraged investment to flow into the system.” Subsequently, when the sell-off occurred, traders began buying in the $75 to $90 range, and CEO Le himself reportedly participated in the direct purchase.
Instead of increasing dividends to boost the stock price, Strategy chose the option of share buybacks. This decision was based on the judgment that increasing dividends would not only have limited effectiveness in stock price recovery but also erode cash reserves, potentially burdening common stock shareholders. In contrast, preferred share buybacks reduce the number of outstanding shares, lowering long-term dividend payment pressure. The company's current $5.1 billion in dollar reserves is sufficient to cover preferred stock dividends and convertible bond interest for the next three years.
The company utilized proceeds from common stock (MSTR) sales and Bitcoin to fund the recent STRC buyback. CEO Le revealed that 95% of his salary is linked to the common stock price, advising shareholders to adopt a long-term perspective of three years. With institutional investor ownership of STRC expanding from the previous 20% to 30%, the analysis suggests that price stabilization will continue as long-term holding institutions replace leveraged traders.
[Article Key Summary]
-Strategy CEO Phong Le attributed the 25% plunge in preferred stock STRC to excessive Bitcoin-collateralized leveraged investments by individual investors.
-Instead of further dividend increases, the company implemented a share buyback strategy to reduce outstanding shares and alleviate the burden, recovering the price to around $99.
-With institutional ownership increasing to 30% and $5.1 billion in dollar reserves secured, long-term stability has been achieved.
*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*
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