Strategy’s Stretch (STRC) is currently facing significant scrutiny and pressure, although industry analysts assert that it should not be likened to the catastrophic stablecoin failures of 2022. Mark Palmer, an analyst at Benchmark-StoneX, points out that while STRC’s preferred stock recently declined to record lows, equating its struggles with the collapse of Terra’s ecosystem is “fundamentally misguided.”
Palmer argues that the alarmist discussions on social media are overlooking key differences between STRC—a dividend-paying product—and the two tokens, TerraUSD and LUNA, which collectively lost $40 billion in market cap during their collapse. He emphasizes, “STRC is not a stablecoin,” highlighting that it is not governed by an algorithmic arbitrage mechanism nor does it rely on a reflexive token structure.
While many stablecoins utilize a combination of cash and U.S. Treasuries for stability, TerraUSD deviated from this standard by employing a “mint-and-burn” approach without hard reserves, which ultimately led to its downfall. In contrast, STRC secures its value indirectly through Strategy’s substantial Bitcoin holdings. The firm recently disclosed ownership of 847,363 Bitcoin, valued at approximately $54.5 billion with the cryptocurrency trading at around $64,400.
As Terra’s framework unraveled, TerraUSD lost its pegged value to the U.S. dollar, triggering a loss of investor confidence. The infamous Anchor Protocol associated with TerraUSD promised an enticing 20% annual yield, attracting deposits before the collapse. Similar rhetoric surfaced regarding STRC’s weakness as it recently offered an 11.5% annual dividend while its value dipped to $82.53 per unit last week. By Monday, the stock closed at $88.65, representing an 11.3% decrease from its par value of $100, according to Yahoo Finance.
Palmer noted that STRC is designed to trade around the $100 mark. The cyclical nature of its pricing has become evident since its launch less than a year ago. When the stock trades at or above this threshold, Strategy issues additional shares to fund more Bitcoin purchases. However, the preference shares have remained under their par value for several weeks, which has led some analysts to speculate that the company may consider raising the dividend rate to help bolster its price.
Strategy also appears to be strategically accumulating cash, recently increasing its cash reserves for three consecutive weeks. This tactic is a signal to preferred stockholders that dividend payments will remain stable. Palmer clarified, “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.”
He further delineated between an inefficient funding engine for the preferred stock and asserting a complete breakdown of the company’s business model, a narrative pushed by some critics. Benchmark-StoneX has maintained a bullish outlook, reaffirming a price target of $570 for Strategy—a figure significantly above the previous high of $457 reached in October.
In the broader market context, Strategy’s share price saw a decline of 2.8% on Monday, marking the fifth consecutive day of losses. As industry watchers keep a close eye on STRC’s performance, the future trajectory of the preferred stock remains a topic of intense debate and scrutiny within the crypto investment community.
