Right now, $15 billion is parked in three financial products being sold to bitcoin investors as a safer, more intelligent way to gain exposure to bitcoin: Strategy’s preferred shares, STRC, and SATA. All three use the same sales pitch. Tax advantages. 11.5% yield. Bitcoin backing. Money-market-level safety. Retail investors make up 82.7% of the buyers. Every single claim in that pitch is false, and the actual security these buyers hold is designed to break down in precisely the kind of bitcoin environment it claims to benefit from.
The Sales Pitch Tells One Story. The Actual Structure Tells the Real One
STRC is an unsecured, subordinated, perpetual preferred stock. It has no maturity date. It has no claim on a single satoshi of Strategy’s bitcoin holdings. The dividend is at the company’s discretion, meaning the board can slash it at any monthly meeting with zero warning, zero recourse, and zero shareholder vote. S&P rates the issuer B-, four levels deep into junk status. None of this shows up in the promotional materials.
Now compare those realities to the language in the pitch. “Backed by bitcoin” describes a security that has no legal claim to a single coin. “Money-market-like” describes a product rated four notches below investment grade, with no maturity date and a dividend the company can cancel at will. “Safe income” describes a payment entirely controlled by the board, funded by selling more of the same security. Every marketing claim is directly contradicted by the legal documents.
This is not a money market fund. It is a speculative-grade credit product wrapped in safe-income branding, and 82.7% of it is held by everyday retail investors. Of the $10.7 billion in STRC currently outstanding, approximately $8.8 billion is owned by retail bitcoin holders who are heavily concentrated in a single junk-rated credit. There is no gentle way to describe that risk. It is a bag, and retail investors are the ones holding it.
The Funding Model Destroys Itself
The core structural danger with STRC is not that the dividend is high. It is that the dividend cannot be paid from actual business earnings. Strategy’s core software business generates about $477 million in yearly revenue. Total preferred dividend obligations now surpass $1.2 billion, a gap of 3.5 to 1. That gap is not bridged by profits. It is bridged by issuing new STRC shares at or above face value, or by diluting common MSTR shareholders, then using those proceeds to pay the existing preferred holders.
That is a self-reinforcing funding cycle. It functions only when STRC trades above par, and it falls apart the instant it does not. Anything that pushes the price down, a credit rating cut, a skipped dividend, a bitcoin downturn, a freeze in capital markets, eliminates the very mechanism the dividend relies on. There is no backup plan in the legal documents. There is no lien on bitcoin to enforce. There is no operating cash flow to tap. There is only the next share issuance, and the next one after that, until either bitcoin’s growth rescues the company or the whole structure seizes up.
Then there is the dividend ratchet. The payout rate has climbed month after month from 9% to 11.5%, locking in $268 million in permanent yearly obligations. The rate has only ever gone in one direction: up. Each monthly hike widens the funding gap, makes each new share issuance more dilutive, and makes it harder to maintain the price floor. The very feature designed to keep STRC appealing to new buyers is the same feature that deepens the burden on the issuer and speeds up the collapse of the funding cycle when pressure hits.
The Imaginary Institutional Buyer and the Numbers That Finish the Argument
The usual defense of the Digital Credit category goes something like this: surely sophisticated institutional money is participating. Insurance companies chase yield. Pension funds need long-duration assets. Fixed-income teams need new products. Digital Credit serves as the institutional gateway to bitcoin.
That defense falls apart under its own reasoning. Any institution putting money into an unsecured, subordinated, perpetual preferred stock built on top of a bitcoin treasury must first analyze the underlying asset. Any institution that does the work to properly evaluate bitcoin will simply buy spot bitcoin directly, where the credit risk disappears and the path-dependent fragility disappears with it. The institutional buyer who is both knowledgeable and rational simply does not exist in this product. The buyer who does exist, at 82.7% concentration, is retail.
The path-dependent math seals the case. Across 5,000 simulated bitcoin price trajectories at a 10% compounding rate, the credit model shows a 12.3% chance of formal default, a 21.9% chance of dividend deferral, and a 50.7% chance of at least one forced bitcoin sale by the issuer over an eight-year period. At a 15% compounding rate, STRC has a 44.6% probability of ending below $85 even on paths where bitcoin reaches new all-time highs.
A bitcoin holder’s final wealth depends only on where bitcoin ends up. An STRC holder’s outcome depends on every dip along the way, because the same mechanisms that appear to protect the dividend during calm periods become the mechanisms that erode the holder’s principal during stress. The product is most vulnerable in exactly the bitcoin scenarios that the underlying asset weathers without issue.
Bitcoin Was Created to Make This Exact Trade Obsolete
Bitcoin exists to eliminate counterparty risk, custody risk, and lack of transparency from holding money. STRC, Strategy’s preferred stack, and similar products bring all three risks back under a marketing veneer that the underlying instrument cannot justify. The alternative requires none of that complexity: bitcoin held in self-custody paired with a U.S. Treasury income ladder delivers the same cash flow profile, with greater final wealth and no corporate issuer standing in the middle.
The market will eventually close the gap between the security retail investors think they purchased and the security they actually own. Anyone who looks at the ownership data and invests anyway is voluntarily backing Saylor’s funding scheme with money that believes it bought a money market fund.
This is a guest post by Glenn Cameron, Global Head of Onramp Institutional. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
