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This month I've been adding BTC and MSTR pretty much everywhere lol, but I haven't forgotten about this ongoing public experiment with hybrid BTC exposure.

I added 1M sats, now 46M, and 5 MSTR shares, now 57.

STRC's depeg continues even as MSTR diluted some of this year's BTC/share to bring the USD reserve, explicitly sold as the first guarantee for preferreds dividends, to a record level of over $3B (22 months of dividends).

I think the main problem with STRC in today's market, is that its addressed market is mainly composed of Bitcoiners or adiacents. This creates a negative feedback for STRC's development because the expected returns on the collateral increase significantly as Bitcoin goes down, making the dividend of the preferreds less attractive. De facto, STRC's yield competes more with the market's view on Bitcoin returns and volatility than with government bond yields.

For a large amount of capital that would not take exposure (or more than a certain exposure) to Bitcoin or BTC-related equities to enter something like STRC, more time is required. Meanwhile, the BTC audience is pro-cyclical on STRC: the lower BTC goes, the more they sell STRC; the higher BTC goes, the more they buy STRC (I guess an explicit rotation of marginal actors should be observed).

I imagine a scenario where, near the next local tops, we see a rotation from BTC into STRC, as those expecting a bear market and negative returns for 1–2 years will find it very attractive to invest the capital accumulated through BTC into a yield instrument, just like you observe a rotation from equities to bonds when the expected returns of the market compresses.

The risk with this development of STRC is that it amplifies the already existing effect of purchases through MSTR equity multiples: namely, that MSTR is able to buy most of its BTC near local tops (which is true over every sufficiently large timeframe).

The problem with issuing high-yield credit at a future local top, while struggling to issue any of it around local lows, is that the effective profit margin (the difference between the increase in the value of the collateral and the yield paid) becomes much smaller and can remain negative for a long time.

The solution could be a more aggressive adjustment of the dividend: lowering it to reduce demand for STRC when the collateral is rising, and raising it, possibly above current levels, when STRC depegs while the collateral is falling.

Both SATA and STRC have been trading for the weeks at around a 13.5% effective dividend yield. I would try raising the at-par dividend to this level and see what happens.

If paying even a 14% dividend allows you to buy substantially more BTC at these prices, it is likely better than issuing no credit at all by keeping the dividend at 12% and resuming purchases at $80k when Bitcoin has already grown enough to pay a 20% yield on credit issued at $60k.

Ideally, you do not want to arrive at a 14% dividend with BTC above $100k, so as demand explodes you want to lower the dividend. Buying $50k BTC in a week at $80k and then being depegged at $60k is probably not the most efficient way to use the instrument. I am sure they are thinking about it.

All this said, as things stand, the existing cumulative issuance of STRC is likely to be very profitable for MSTR shareholders. The average BTC purchase price financed with an 11% yield is around $76k, meaning that simply returning to the previous BTC ATH would generate enough capital appreciation for common shareholders to offset more than 70% of the cumulative STRC issuance, or roughly 7–8 years of dividends.

This means that, in a scenario where Bitcoin returns to ATH levels within a couple of years, every billion dollars of STRC issued at these prices turns into more than $700M of profit for shareholders.

This is why I think they should be more aggressive in raising dividends during drawdowns (they already have the balance sheet optionality to sustain long drawdowns), and more focused on reducing the cost of capital, by lowering dividends and issuing less credit, during upward moves. They can generate a lot of alpha by more actively adjusting the cost of capital.