Stretch [STRC]one of the Strategy’s preferred stocks used to raise capital for Bitcoin purchases fell to a record low of $82.5 on Thursday.
The stock is now down 18% from its $100 par value and has not been pegged since mid-May. Unsurprisingly, the latest decline came after Bitcoin also fell to $62,000 amid a broader risk-off amid Fed rate hike fears.
However, analysts say the STRC’s sharp decline outweighed macroeconomic fears.
How STRC depeg could impact MSTR and Bitcoin
It’s worth pointing out that STRC was trading around $100 but only started its crash after Strategy sold 32 BTC in late May. As broader market fears at the time led BTC to retest below $60,000, STRC fell to $90.
Strategy also used some of the reserve intended for dividend obligations for STRC and others preferred to reduce debt burden. For some market watchers, speculation was rife over whether the company could comfortably meet its dividend payout, which fell to just seven months of coverage.
It’s worth pointing out that preferred stock only recovered after Strategy 1,550 BTC bought back and increased its US dollar reserve in early June.
Market fears over STRC’s dividend coverage have increased in recent days. Now analysts predicted that Strategy could be forced to sell more BTC to meet these obligations. In reality, QCP analysts warned that the overhang of this Strategy could limit BTC’s rally in the short term.
In turn, Arca’s CIO, Jeff Dorman, blamed Strategy CEO Michael Saylor for creating the current market uncertainty surrounding STRC, MSTR, and BTC.
To save himself, Dorman told Saylor:
Sell a huge amount of BTC and MSTR to bring the $STRC back up, and at the very least buy yourself some time, or continue to watch every part of your cap structure melt away because of the uncertainty you’ve created.
However, he expects Saylor will avoid a massive BTC sell-off, but MSTR shares will fall due to the stock dilution to fund STRC liabilities.
In other words, both Dorman and QCP analysts believed that Strategy’s STRC crisis would be a problem for BTC in the near term.
At the time of writing, MSTR was valued at $112.5, down 15% in the past week. During the same period, BTC fell 3.25%, while STRC fell 6%.
This meant that STRC fell twice as much as BTC. But MSTR dumped five times harder than BTC, further underscoring Dorman’s thesis.
Final summary
- Strategy’s STRC fell to a record low of $82.5, down 18% from the established par of $100.
- Analysts warned that STRC’s depeg could impact MSTR and BTC in the near term.