Strategy’s Bitcoin holdings are about $12 billion below its purchase cost, and the company’s capital raising model is under the most pressure since accelerating its Bitcoin financial strategy.
The company held 847,363 Bitcoins as of June 21st, acquired for a total of $64.1 billion at an average price of $75,651. The top cryptocurrency recently traded between $60,000 and close to $62,000, making the position worth about $52 billion.
Against this backdrop, Strategy’s MSTR common stock fell below $100, its lowest price in nearly two years.
While this large unrealized loss does not force Strategy to sell its holdings or issue automatic margin calls, it significantly weakens the conditions that allow the company to repeatedly issue securities, buy more Bitcoin, and expand the treasury that has become the center of market valuation.
The strategy’s accumulation model worked most efficiently when the company’s common stock was trading at a premium to the value of Bitcoin on its balance sheet. This premium allowed the company to raise capital through stock sales while limiting the number of new shares issued.
That advantage narrowed as Bitcoin and Strategy’s stock price fell. The pressure has since spread to STRC, the company’s floating-rate perpetual preferred stock, which is trading well below Strategy’s stated $100 price target.
Preferred stock falls further below target
Strategy created STRC as an income-oriented security intended to trade around a stated price of $100. The company can influence investor demand and reset the dividend rate monthly to support market prices.
This security currently pays an 11.5% annual dividend. This equates to $11.50 per share based on stated amounts. Nevertheless, STRC has fallen to around $81, almost 20% below the level the company is trying to maintain.
Assuming Strategy’s board of directors continues to declare dividends and interest rates remain unchanged, the current payment is $81, representing an effective annual yield of approximately 14.2% for new buyers.
If the stock price declines, the amount Strategy pays for existing STRC shares will not increase. This indicates that investors are demanding higher returns for holding securities, making it less efficient to issue additional preferred stock.
This strategy could increase the payout rate to encourage purchases and push STRC closer to $100. However, such adjustments would increase the Company’s recurring cash requirements. On the other hand, leaving interest rates unchanged would maintain liquidity but could allow preferred stock to continue trading at a discount.
This trade-off has become more significant as concerns grow over strategies’ Bitcoin exposure and cash needs. The company’s STRC balance is approximately $10.5 billion, meaning that even a small rate hike could significantly increase annual dividend costs.
If the discount continues, STRC’s ability to raise future funds may be weakened. New investors may be reluctant to purchase additional shares near the stated amount because comparable securities are trading significantly below the stated amount in the secondary market.
STRC options traders prepare for a wider range
The STRC options market shows that traders are expecting both a partial recovery and further decline.
Total options trading volume amounted to approximately 10,400 contracts, which was 167% of the average daily trading volume of 6,220. The put-call volume ratio is 1.35, meaning that put activity exceeded call volume during the measurement period.
This ratio indicates the defensive slope, but does not indicate whether the put was bought or sold. Additionally, open interest data does not specify whether a position belongs to an institutional investor, retail investor, or market maker.
For contracts expiring on July 17, the highest concentration of open interest is in $95 calls, with 9,432 contracts outstanding. The $100 call has an additional 5,518 contracts and the $90 call has 2,536 contracts.
This concentration identifies the area between $95 and $100 as the primary upside range reflected in the options chain. These moves toward strikes would bring STRC closer to the level the strategy was intended to track.
However, these positions do not confirm that traders collectively expect such a recovery. Some calls represented outright bullish bets, others were sold against existing STRC holdings, or were used in multi-leg spreads that capped the area around $100.
On the other hand, the downside position has further expanded significantly.
Open interest includes 1,533 contracts for $90 puts, 1,976 contracts for $85 puts, and 2,994 contracts for $60 puts. The $60 strike puts STRC 40% below the stated amount, and if the current dividend rate is maintained, the effective yield will rise to more than 19%.
These numbers indicate that some traders are bracing for a scenario in which the dividend reset mechanism fails to bring the stock back to $100, and investors continue to demand larger returns.
Taken together, option positions define the range that investors are focused on. Calls near $95 and $100 preserve the potential for a managed recovery.
But the $60 put position in particular shows that traders are also defending against deep discounts.
Build cash with strategies and open the door to Bitcoin sales
To weather this market downturn, Strategy’s recent capital allocation suggests the company is placing greater emphasis on liquidity.
The company announced this week that it had raised approximately $335.5 million through the sale of common stock, but used only $34.9 million to acquire an additional 520 Bitcoins.
Much of the remaining capital helped increase Strategy’s dollar reserves to about $1.4 billion, the company said.
The move shows the company is still acquiring Bitcoin, but the cash needed to pay interest and preferred dividends competes more directly with additional purchases.
This marks a change from a time when the company was directing a larger proportion of its available capital toward expanding its treasury.
Meanwhile, Strategy has also indicated its intention to sell some of its shares in order to raise funds for its business.
Last month, Strategy sold 32 Bitcoins for approximately $2.5 million, and said the proceeds would be used to fund STRC’s distribution. This was Strategy’s first net Bitcoin disposition since 2022.
Although the sale was small compared to the company’s holdings, it demonstrated that some of the Treasury could be converted into cash if other financing options become less attractive.
Commenting on this measure, CryptoQuant CEO Ki Young Ju said:
“[The strategy]needs to create a disciplined selling framework for the next bull run. Partial selling near cycle highs does not mean abandoning Bitcoin. It creates dry powder to deleverage the company, realize shareholder value, and re-accumulate lower. It’s not trading. It’s risk management.”
There is time for strategy, but there are few easy options.
The overall pressure on Strategy and STRC has left market participants divided over whether Saylor’s company is facing a temporary loss of confidence or serious flaws in its funding model.
Su Zhu, co-founder of the defunct Three Arrows Capital, argued that preferred stocks could stabilize as they move from short-term investors to holders willing to accept higher yields and volatility. In his view, if stronger demand emerges at lower prices, the strategy may not need to be overhauled immediately.
He said the company could further support its confidence by explaining how STRC holders will be treated if the dividend is suspended, including whether their shares may ultimately have a claim on Strategy’s Bitcoin.
STRC currently does not allow investors to exchange their company’s shares for the underlying virtual currency. Adding such a feature could make the relationship between the preferred stock and Strategy’s assets clearer and create a valuation floor. It would also expose the company to redemption demands that do not exist under its current structure.
Meanwhile, Joe Barnett, vice president of Bitcoin strategy at Strive, said this lack of instant redemption is a key difference between Strategy and failed crypto systems like TerraUSD.
Before TerraUSD collapsed in 2022, there were approximately $18.7 billion of stablecoins in circulation, compared to roughly $3.1 billion in Bitcoin reserves, and its design allowed holders to seek redemption. In contrast, Strategy holds more than $50 billion in Bitcoin against STRC, which has approximately $10.5 billion, and its preferred shareholders cannot demand repayment of the underlying assets.
This comparison shows that the Strategy is less vulnerable to the type of rapid runs that overwhelmed the Terra. The risk is more gradual. A prolonged decline in Bitcoin could raise funding costs, reduce demand for securities, and force the company to deploy more capital to pay dividends and interest.
But Charles Edwards, founder of Capriol Investments, believes there is a more fundamental problem. He argued that Strategy remains overly reliant on Bitcoin’s appreciation and continued access to capital markets to support its obligations.
Edwards said the company needs to reduce its debt and preferred stock debt while developing a revenue stream that is not completely dependent on rising Bitcoin prices.
His proposals included secured lending and payment services, as well as acquisitions of digital asset treasury companies that trade at deep discounts to the value of their holdings.
This approach would move Strategy closer to a Bitcoin-focused financial institution and away from a model that primarily revolves around raising funds to buy more cryptocurrencies. The company will also need to withdraw from some of the securities it created to expand its finances.
Despite this view, the strategy still has room to address economic downturns. The company has over $50 billion in Bitcoin holdings at current prices and has built reserves of $1.4 billion. Additionally, STRC investors cannot immediately redeem their shares to the Treasury.
These safeguards reduce the risk of sudden liquidity events, but do not solve the increased cost of maintaining the structure.
If Bitcoin recovers, the value of Strategy’s holdings could increase and demand for both MSTR and STRC could recover. A prolonged economic downturn would make the company’s options less attractive: increasing STRC’s dividend to support its preferred stock, issuing common stock at a lower price, reducing its Bitcoin purchases, or selling more government bonds to meet cash obligations.
The debate is therefore less about whether the strategy can maintain its underground position in the short term and more about how much it will have to spend to maintain its funding model until Bitcoin recovers.
(Tag Translation) Bitcoin
