“STRC is not a stablecoin,” Palmer underscored. “It is not backed by an algorithmic arbitrage mechanism, and it is not dependent on confidence in a reflexive token structure.”
STRC, conversely, is indirectly backed by Strategy’s Bitcoin holdings. The Tysons Corner, Virginia-based firm signaled on Monday that it now owns 847,363 Bitcoin, a sum valued at $54.5 billion with the digital asset changing hands around $64,400.
As Terra’s ecosystem unwound, TerraUSD “depegged,” losing parity with the U.S. dollar as investors swiftly lost confidence in the protocol’s ability to remain stable. The project’s Anchor Protocol was famously known for offering a 20% annual percentage yield on deposits.
STRC, Palmer noted, is engineered to trade around the $100 mark, but its price has been cyclical since it debuted less than a year ago. When STRC trades at or above that threshold, Strategy issues more shares and uses the proceeds to purchase more Bitcoin.
The product has lingered below its $100 par value for several weeks, and some analysts now anticipate that the company will seek to increase the product’s dividend rate in an attempt to support its recovery back toward that level.
There are other levers that Strategy can pull as well. For example, the Bitcoin-buying firm has accumulated cash for three straight weeks, topping off its USD reserve as a way to communicate to preferred stockholders that dividend payments will continue flowing.
When STRC trades below the $100 mark, its ability to purchase Bitcoin may be constrained, but that doesn’t mean there’s a fundamental problem, Palmer wrote.
“There is a meaningful difference between stating that Strategy's preferred stock funding engine has become less efficient,” he said, “and asserting that the company's overall model is broken, as some of its detractors have suggested.”
The investment bank reaffirmed its $570 price target for Strategy. The forecast is far above the multi-year high of $457 that the company’s shares soared to in October.
On Monday, Strategy shares fell 2.8% to $109. The performance added to a negative streak, with the company’s stock price falling for a fifth straight trading day.
