Stretch [STRC], one of the Strategy’s preferred stocks used to raise capital for Bitcoin buys, fell to a record low of $82.5 on Thursday.
The stock was now down 18% from its $100 par and has remained depegged since mid-May. Unsurprisingly, the latest drawdown was triggered after Bitcoin also slipped lower to $62K amid a broader risk-off amid Fed rate hike fears.
However, the STRC’s sharp plunge was beyond the macro fears, according to analysts.
How STRC depeg could impact MSTR and Bitcoin
Worth pointing out that STRC traded near its $100 but only began its crash after Strategy sold 32 BTC in late May. As the broader market fears dragged BTC to retest sub-$60K during that time, STRC dropped to $90.
Strategy also used part of its reserve meant for dividend obligations for STRC and other preferred to reduce its debt burden. For some market watchers, speculations were rife whether it could comfortably meet its dividend payout, which shrank to only seven months of coverage.
Worth pointing out that the preferred stock only bounced after Strategy bought back 1,550 BTC and increased its US dollar reserve in early June.
In the past few days, the market fears over dividend coverage for STRC have heightened. Now, analysts projected that Strategy could be forced to sell more BTC to meet these obligations. In fact, QCP analysts warned that this Strategy’s overhang could cap BTC’s rally in the near term.
For his part, Arca’s CIO, Jeff Dorman, blamed Strategy’s CEO, Michael Saylor, for creating the current market uncertainty around STRC, MSTR, and BTC.
To salvage himself, Dorman told Saylor to,
Either sell an enormous amount of BTC and MSTR to help bring $STRC back up near par, and at least buy yourself some time, or continue to watch every part of your cap structure melt because of the uncertainty you’ve created.
However, he expects Saylor to avoid a massive BTC sell-off, but MSTR stock will fall amid share dilution to fund the STRC obligations.
In other words, both Dorman and QCP analysts deemed Strategy’s STRC crisis was an issue for BTC in the near term.
As of writing, MSTR was valued at $112.5, down 15% over the past week. Over the same period, BTC was down 3.25% while STRC fell 6%.
This meant that STRC dropped twice as hard 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 its designated par of $100.
- Analysts warned that STRC’s depeg could affect MSTR and BTC in the near term.
