A top credit analyst warns that the popular high-yield perpetual stock used by Strategy to fund its Bitcoin treasury is a powder keg of mispriced risk.
Back
Analyst: 11.5% STRC yield blinds investors to major dislocation risk
Investors chasing high yields in perpetual preferred stocks like Strategy’s STRC are mispricing major dislocation risks, according to a credit analyst, following a record $1.5 billion trading day for the instrument used to fund Bitcoin purchases.
"If spreads start to rise and the market demands higher yields from corporate borrowers, you also have to attach that to the infinite duration of the perpetual," Matt Dines, chief investment officer of credit asset management firm Build Markets, said in a May 16 interview with the Truth for the Commoner media outlet. "If this dislocation comes in liquidity, it will come from the fiat side.”
The warning targets instruments like Strategy’s Variable Rate Series A Perpetual Stretch Preferred Stock (STRC), which carries an 11.5 percent dividend and has become a primary vehicle for the company's Bitcoin accumulation strategy. Demand has been high, with daily trading volume for STRC surging to a record $1.53 billion last week, a figure highlighted by Executive Chairman Michael Saylor.
The core risk, according to Dines, is that holders are permanently exposed to liquidity contractions and rising interest rates because the shares have no maturity date. To recover their principal, investors must sell on the secondary market, which could devalue their investment significantly in a market shift—a danger Dines argues is not fully reflected in the current ~$99 share price.
A Ceiling on the Strategy
Strategy’s financing vehicle may also face structural limits. The STRC instrument currently has an authorized issuance cap of approximately $28 billion, according to research from Delphi Digital. With the total notional face value of outstanding shares already at $8.5 billion, the company could see its primary Bitcoin funding engine slow down if the cap is not raised.
To keep attracting investors, Strategy has proposed shifting dividend distributions from a monthly to a semi-monthly schedule, a move that would increase the frequency of payouts. This comes as competitors, such as Strive’s SATA, are moving to daily payments.
Persistent Scrutiny
Strategy's model continues to attract skepticism. Economist and prominent Bitcoin critic Peter Schiff has previously described the financing structure as a Ponzi scheme.
Dines’ analysis provides a more technical critique, focusing on the market mechanics of the perpetual stock itself. Unlike convertible notes, which have a set maturity date for repayment of principal, perpetuals can pay their dividend indefinitely. This exposes holders to what Dines calls "infinite duration," meaning their principal is sensitive to interest rate changes forever. If government bond yields rise, the relative attraction of STRC's 11.5% dividend could diminish, forcing its price down on the secondary market for its yield to become competitive.
This article is for informational purposes only and does not constitute investment advice.
[1] Preferred Perpetual Stock Holders Are Mispricing Risk: Crypto Exec[2] STRC preferred stock investors are mispricing major 'dislocation' risk: analyst[3] MicroStrategy's STRC Notches $1.53 Billion in Daily Volume for New Record[4] Don't let MicroStrategy's Q1 loss scare you off. A new preferred stock strategy could benefit long-term MSTR holders.
