Author: CJ_Blockchain

BTC has maintained absolute strength in a macro-shaking 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 USD, with a single-day peak trading volume reaching 750 million USD. It has almost become the preferred stock with the best liquidity among U.S. stocks.

According to the mechanism of STRC, last week's trading volume could bring BTC a potential net buying of approximately 700 million USD.

This article aims to introduce the basic situation of STRC, its operation mechanism, and why it would bring buying pressure to BTC, along with 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 disassembles the sharp volatility of Bitcoin into credit products with fixed cash flow attributes through stratification.

The four core characteristics of STRC:

• Short-term high-yield credit: Positioned as a short-term high-yield instrument, providing competitive monthly dividends (current annualized rate of 11.5%).

• Perpetual structure: No fixed maturity date, and the company does not bear the "repayment" pressure of traditional bonds, belonging to permanent capital.

• Capital structure priority: Superior to common stock ($MSTR) in liquidation priorities, providing a safety cushion for debt-oriented investors.

• No default risk: Legally classified as equity, dividend payments are not mandatory, avoiding bankruptcy defaults triggered by temporary cash flow shortages.

Comparison between MSTR and STRC

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

The Strategy company uses a series of financial leverage to lock the market price of STRC around 100 USD, thereby establishing a stable financing window.

Key price control tools:

• Dynamic dividend adjustment: Strategy adopts reflexive interest rate adjustments. If the STRC price is below $99, the company will raise dividends (by 25-50 bps) to stimulate buying; conversely, it will suppress excessive demand by lowering rates, bringing yields back to market equilibrium.

• ATM: When the STRC price > $100, Strategy will issue additional STRC at a price of $100 to sell in the market, absorbing the surplus demand while converting excess funds into BTC purchasing power.

• Redemption terms: The company reserves the right to redeem STRC at $101. This clause psychologically and financially limits investors' motivation to purchase at a premium, ensuring the price does not deviate from par value.

• Tax efficiency optimization: STRC dividends possess "capital return" nature, allowing holders to enjoy tax deferral benefits. This architectural design reduces investors' selling frequency, enhancing the stability of the $100 price anchor.

Strategy is committed to anchoring the price of STRC within a narrow range of 99-100, using this as a foundation for large-scale conversion of Bitcoin purchasing power.

3. Structured BTC Appreciation Flywheel: Conversion from Transaction Amount to Purchasing Power

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

• Issuing STRC to meet surplus demand: When the STRC price reaches 100 USD (par), the company will issue and sell new shares through STRC's ATM plan to meet the "surplus demand" exceeding the current market value. For example, if one day's trading volume of STRC at 100 USD is 100 million USD, assuming 30% corresponds to newly issued shares, the company would sell 30 million USD of STRC and immediately purchase 30 million USD of BTC.

• Balancing leverage ratio: Issuing additional STRC effectively increases the company's debt. Currently, MSTR's leverage target is maintained at around 33%, meaning for every additional dollar of debt, the treasury must increase BTC by 3 dollars. Therefore, in the scenario of an additional 30 million USD of debt, Strategy needs to add an additional 60 million USD of BTC.

• Issuing common stock MSTR to fill the gap: To obtain this additional 60 million USD of BTC and maintain leverage stability, the company will use ATM on common stock MSTR, issuing and selling 60 million USD of new MSTR shares, then using the proceeds to purchase 60 million USD of BTC.

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

Of course, the core factor here is the time and trading volume of STRC trading above 100 dollars during the week, and it is assumed to be 30% for ease of understanding. In reality, it still depends on the announcement made by MSTR next week.

This flywheel cannot turn indefinitely; there are currently three core constraints:

• The price of STRC must reach 100 USD: MSTR is only a seller of STRC at 100 USD. If the STRC price strictly falls below 100 USD, new stock issuance will not trigger, which means no conversion into new BTC purchasing power.

• The mNAV of common stock must be greater than 1x: Strategy's core long-term goal is to increase the Bitcoin ratio per share. Only when MSTR's mNAV is above 1x can selling common stock to purchase BTC increase bps; if mNAV falls below 1, selling MSTR for BTC will cause dilution, and the company will avoid using ATM on MSTR. If there is extremely high demand for STRC but mNAV is below 1x, the company can only suppress surplus demand by lowering the STRC dividend rate.

• The long-term price performance of BTC (the fundamental risk): The entire strategy is fundamentally based on the long-term expectation of BTC's price increase (e.g., over 20% annual return). If BTC enters a long-term bear market, STRC may fall below par and continue to trade at a discount, MSTR's mNAV may also drop below 1, cutting off the way to issue common stock to pay dividends. Once such an extreme situation arises, Strategy can only rely on its existing USD reserves (currently can support for about 28 months) to pay dividends; if USD reserves are depleted, the company will be forced to gradually sell its BTC reserves.

4. Conclusion

Saylor emphasized 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 BTC drops, Strategy and Saylor himself bear the most discussions. Some are worried about Strategy's collapse, while others are concerned that Strategy has bought too much, affecting BTC's decentralization.

But Saylor never cares; he just wants to buy BTC by any means possible.

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