Strategy (formerly MicroStrategy) launched STRC (“Stretch”), a perpetual preferred stock with a par value of $100, in early 2025. As of March 31, 2026, STRC had a notional size of $5 billion, with peak daily volume exceeding $300 million. It has provided over $3.5 billion in BTC purchase funding, becoming Strategy's most important funding vehicle. As of April 12, Strategy held 780,897 BTC on its balance sheet, with a leverage ratio of 33% and remaining STRC ATM issuance capacity of approximately $21.6 billion.
How STRC Works: Converting Fixed-Income Demand into BTC Buying Pressure
STRC maintains price stability through monthly floating dividends. When STRC trades near $100, Saylor issues new shares via ATM (about 40% of daily volume), uses proceeds to buy BTC, then issues MSTR common stock at a premium to NAV (mNAV >1x) to deleverage. This mechanism means $100 million in STRC daily volume can drive about $120 million in BTC purchases.
The vulnerability lies in the circularity: STRC stays at $100 because investors believe it will stay there. Saylor sustains that belief by continuously raising dividends. The anchor is not collateral-backed but confidence-backed, maintained by an uncapped continuous dividend auction. Once confidence breaks, the auction becomes increasingly expensive.
Three Failure Pathways: From BTC Drop to Flywheel Breakage
First, a sharp BTC drop breaks the $100 anchor. This happened three times (August 2025 at ~$92, November 2025 intraday low, February 2026 at ~$93) but each time BTC rebounded quickly to pull the anchor back.
Second, the dividend hike trap. Per Strategy's SEC guidance: if monthly VWAP is between $95 and $99, the dividend rate increases 25 bps per month; if below $95, 50 bps per month. From 9% to 11.5%, the rate rose 250 bps over roughly eight months. April 2026 marked the first pause after seven consecutive increases. Bulls see demand stabilizing; bears see Strategy hitting the yield sensitivity ceiling of traditional fixed-income buyers. If BTC stays depressed, dividends must keep rising. At $5B size, each 100 bps hike means $50 million extra annual cost; if STRC grows to $20B, the cost becomes $200 million. A bear market lasting over six months could push yields to 13–15%, with annual dividend payments exceeding $2.6–3 billion, forcing a choice between “keep hiking” and “abandon the stable narrative.”
Third, mNAV falls below 1x, breaking the flywheel. Strategy needs to issue MSTR common stock above NAV (mNAV>1x) to buy BTC and deleverage. If mNAV drops below 1x, issuing common stock dilutes existing holders, and Saylor cannot deleverage. He faces a trilemma: issue STRC at higher dividends while accepting more leverage; unilaterally cut dividends (25 bps per month per SEC terms) allowing STRC price to fall; or sell BTC into a falling market. Saylor has repeatedly said he will never sell BTC. BitMEX Research believes the most likely outcome is cutting dividends, with all pressure transferred to STRC holders.
Early warning signals have already flashed: In the week of April 6–12, MSTR ATM issuance was $0, while STRC raised $1.00 billion (10,028 million shares). mNAV is already too tight for Saylor to risk diluting MSTR common stock. The flywheel is running on one leg—the preconditions for phase three are partially triggered.
Distinction from UST/Terra: Real BTC Backing vs. Algorithmic Mint-Burn
Unlike UST, STRC is backed by real BTC, and Strategy has discretion to cut dividends rather than be forced into liquidation. STRC's floor is not zero—it's the residual claim in bankruptcy after senior obligations. But if BTC drops over 60% and stays low, that floor could be far below $100. The critical variable is time: previous STRC drawdowns were repaired in weeks because BTC rebounded. A true crash requires a sustained bear market (BTC below $50K for over three months) for the dividend hike mechanism to erode confidence long enough.
Capital structure priority: convertible notes (~$8.2B) → STRF → STRC → STRK → STRD → MSTR common. STRC sits behind $8.2B of unsecured debt and STRF preferreds.
BitMEX Research warned: “STRC's risk is significantly higher than short-duration Treasuries… when the music stops, investors may feel slightly offended.” Greg Cipolaro, NYDIG's global head of research, said: “The appropriate method to assess STRC risk is from the perspective of governance and subordination, not just payment risk.”
Current Signals: Hold and Wait
STRC currently trades near par and pays 11.5%, but the margin of safety is thin. Re-entry conditions: BTC above $70–75K and MSTR mNAV above 1.1x for two consecutive weeks. Exit signals: mNAV below 1.0x for over two weeks; STRC VWAP below $95 for four consecutive weeks; BTC breaks below $55K with volume. Hold existing positions and wait for better entry points and BTC upside.