Bitcoin-linked stock offering 11.5% interest, will Strategy's massive gamble succeed?

▲ Strategy, Bitcoin (BTC)/AI generated image ©

Regarding Strategy's new financial product, which guarantees a high return of an impressive 11.5% based on Bitcoin (BTC) and is sucking up market funds like a black hole, there are sharply divided opinions between those who hail it as an innovative investment tool and experts who warn it's a dangerous gamble that could collapse at any time.

According to DL News on April 23 (local time), STRC, a preferred stock recently issued by Strategy, is gaining tremendous popularity among investors hungry for high returns. The company used the funds raised through this stock to acquire an additional 34,164 Bitcoins last week, valued at approximately $2.5 billion, and it was revealed that about 85% of the total acquisition funds were covered by STRC sales.

The biggest appeal of STRC is that it regularly pays an exceptional annual dividend of 11.5%, collateralized by its Bitcoin holdings. Satish Patel, an investment analyst at CoinShares, analyzed that the dividends from this product are classified as a return of capital rather than ordinary income, offering significant tax-saving benefits to high-income investors seeking to avoid high bond coupon taxes. He also explained that as the volatility of this stock has recently decreased, it is being perceived less as a mere proxy investment for Bitcoin and more as a stable high-yield generating instrument.

However, experts point out that fatal risks lurk behind these dazzling returns. Dom Kwak, co-founder of EasyApp and a former Goldman Sachs analyst, warned that using Bitcoin, a highly speculative asset, as collateral for preferred stock could become an extremely dangerous game if the market enters a bear phase. The biggest trigger, he noted, is that the company can cease dividend payments or arbitrarily adjust the payout rate at any time.

Indeed, if the STRC price falls below $100, the company will no longer be able to issue new shares, which would mean the collapse of its entire capital funding structure. Considering that the product has traded around the $93 mark in the past three months, the risk of dividend suspension and fundamental collapse due to a decline in Bitcoin price is a realistic threat that cannot be ignored.

Nevertheless, there is also a view in the market that Strategy will desperately maintain dividends, as a suspension would mean cutting off the company's lifeline. Investors are keenly watching whether this unprecedented financial product, which relies entirely on Bitcoin's value while simultaneously offering perpetual dividends and tax benefits, will remain a groundbreaking innovation or end as a grand mirage.

*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.*