Strategy’s CEO has a confession: his company’s stock plunged because investors borrowed cheap Bitcoin to buy it, then panicked when Bitcoin fell.
Phong Le told Natalie Brunell’s Coin Stories podcast that the company did not expect the amount of leverage that entered the market for STRC. Investors borrowed against their Bitcoin at lower rates to buy STRC and capture the spread between their borrowing costs and the security’s dividend yield. When Bitcoin’s price fell, those investors faced pressure to add more collateral or sell STRC.
The Decline
In June, STRC fell sharply below its $100 stated amount. It hit an intraday low of $71.25 on June 26, according to Yahoo Finance data.
Le attributed the decline to more leverage entering the market than the company had anticipated. He said some investors borrowed against Bitcoin at lower rates to buy STRC and capture the spread between their borrowing costs and the security’s dividend yield. When Bitcoin’s price fell, investors who had borrowed against their holdings faced pressure to either add more collateral or sell STRC.
How the Borrowing Worked
Investors borrowed against their Bitcoin at lower rates to buy STRC and capture the spread between their borrowing costs and the security’s dividend yield. When Bitcoin’s price fell, those investors faced pressure to add more collateral or sell STRC.
The Recovery
Since then, STRC has bounced back to roughly $98.41, coming close to matching Strategy’s stated objective of maintaining security within the range of $99 to $100. The company now pays a 12% variable annual dividend rate.
What Comes Next
Strategy is working to avoid a repeat of that kind of unwind, Le explained. To do so, the company is keeping a strong US dollar reserve and has put in place a policy that lets it buy back STRC whenever it falls below its stated $100 amount.
The company is aiming to draw in more long-term holders, especially institutional investors, he added.
Key Numbers
- Low point: $71.25 on June 26
- Stated amount: $100
- Dividend rate: 12% variable annual
- Podcast: Coin Stories, hosted by Natalie Brunell
- CEO: Phong Le
Timeline of Events
| Date | Event |
|---|---|
| June | STRC falls below $100 |
| June 26 | Intraday low of $71.25 |
| Now | Price recovered toward stated amount |
The Admission
The admission from Le is frank: he stated that the company failed to foresee the leverage.
Le’s admission stands apart from most chief executives, who typically use their podcast time to argue that investors failed to grasp what their companies were doing. He instead pointed directly at his own team’s lack of forward planning rather than blaming outside interference.
It is not yet clear whether the repurchase policy can keep the price near $100. The lesson for now is straightforward: when you take on debt to purchase a dividend-paying security, you are wagering that the dividend will exceed your borrowing costs. If the underlying asset declines, that bet faces its test quickly.
Strategy learned that lesson the hard way.
Source material: “Strategy seeks shareholder approval for daily preferred stock dividends,” Cointelegraph.
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