Bitcoin Accumulation through Preferred Stocks
This week, it was reported that Strategies (MSTR) acquired approximately 7,000 Bitcoins through Stretch Perpetual Preferred Stock (STRC). This highlights how quickly this high-yield investment has become crucial for the company’s Bitcoin strategy.
However, this investment structure carries certain risks, according to Alexander Bloom, CEO of Two Prime, an SEC-registered firm that focuses on Bitcoin yield strategies and lending.
“There’s no free lunch,” Bloom noted. “Investments offering more than 6% relative to U.S. Treasuries typically come with extra risks.”
The appetite for preferred stocks is soaring as investors chase higher returns. STRC currently offers an 11.5% yield with monthly cash distributions. The company describes this product as akin to a short-term, high-yield savings account, featuring an adjusted payout rate designed to keep the stock close to its $100 par value while minimizing price volatility.
This structure has sped up the company’s Bitcoin purchases. Market estimates indicate that in the last two weeks alone, Strategies has acquired over 11,000 BTC, raising the total accumulated through this product since its inception to around 34,000 BTC.
Interest from businesses is also on the rise. Asset management firm Strive (ASST) announced a $50 million investment in STRC, and digital credit firm Apix recently added 200,000 STRC shares, bringing its total holdings to 255,000 shares.
Bloom mentioned that STRC was a significant topic at the recent Strategy World conference, emphasizing its importance to the company’s capital strategy.
He also mentioned ongoing attempts to develop decentralized financial products using STRC, sometimes marketed as savings products, despite the volatility of the underlying assets.
While STRC is designed to trade close to its $100 par value, that isn’t guaranteed, Bloom cautioned. He pointed out that if confidence wanes—be it in the company, Bitcoin, or the stock itself—the price could drop below par, which could lead to significant losses.
Indeed, STRC has dipped below its $100 par value at times, prompting the company to raise its dividends to help restore the stock’s value.
Despite these concerns, Bloom added that the structure is not facing imminent challenges as momentum remains strong, there is sufficient cash for interest payments, and the demand for higher yields persists.
