Bitcoin Slumps, but Saylor Touts STRC Dividends

Bitcoin was trading at 64,428 dollars on Saturday, a decrease of 21.2% over one month. At the same time, Michael Saylor highlighted the performance of STRC, Strategy’s preferred dividend stock, to emphasize its resilience against the crypto crash. Its chart shows exact figures. However, a comparison period somewhat spoils the picture: over three months, bitcoin performs better than STRC.

STRC resists bitcoin’s fall, but not for all periods

Michael Saylor’s publication is based on four comparison periods. Over one week, STRC shows a 0.3% return, while bitcoin falls by 9.1%. Over one month, the preferred stock yields 1%, dividends included, against a 17.3% decline for the cryptocurrency. Over one year, the gap becomes even more impressive: +13.4% for STRC, versus -29.8% for bitcoin.

On X, Saylor defends this performance with his usual formula: bitcoin represents digital capital, while Strategy transforms it into digital credit. He also points out that STRC’s price stayed almost stable over one month and that dividends brought its total return to 1%.

However, the chart includes a fourth period less flattering to his argument. Over three months, bitcoin gains 8.7%, against only 7.5% for STRC. In other words, the product supposed to offer a more stable alternative does not systematically outperform bitcoin. Even in Saylor’s charts, first place is not guaranteed.

A 12% return, does it really finance the dividends?

STRC shows an annualized dividend rate of 12%, but it remains variable. According to data published by Strategy, a share was worth 99.91 dollars at the close on November 13. At an unchanged rate, this represents about 12 dollars of annual dividends for 100 dollars of nominal value. However, be aware: this is not a guaranteed and immutable coupon.

But the essential question concerns the origin of this money.

As of November 8, Strategy held a dollar reserve of 4.77 billion, intended to cover dividends on its preferred shares and interest on its debt. The company also had 146.2 million dollars in cash. Between November 2 and 8, it drew 21.1 million from this reserve to honor dividend payments.

The return of STRC therefore does not depend directly on an increase in bitcoin. Strategy relies rather on a cash reserve, notably funded by the sale of common shares. This mechanism raises questions about its sustainability in the long term. On November 12, economist Peter Schiff also questioned the sustainability of this model.

Adding to this concern is another threat. On the same day, MSCI announced its intention to exclude Strategy from its global stock indices. Such a decision could reduce institutional investors’ demand for the company’s shares.

Strategy faces 9.37 billion dollars of latent losses

Behind STRC’s performance, Strategy’s situation also deserves closer examination. The company holds 850,364 bitcoins, acquired for a total amount of 64.16 billion dollars.

At a price of 64,428 dollars per unit, this reserve is worth about 54.79 billion. The difference represents a latent loss of 9.37 billion dollars. It remains theoretical as long as Strategy does not sell its bitcoins, but it illustrates its balance sheet exposure to market fluctuations.

Despite this pressure, Michael Saylor continues his accumulation strategy. Between November 2 and 8, Strategy bought 1,036 bitcoins for 81.9 million dollars. At the same time, it repurchased 1,887,464 STRC shares for 188.3 million dollars, thanks to common share sales.

In the end, Saylor’s chart tells part of the story, but not the whole story. STRC indeed resisted better than bitcoin over certain periods, notably during the recent correction. However, its return relies on a financing mechanism that deserves as much attention as the displayed dividend rate.

For investors, the comparison should therefore not be limited to the most flattering percentages. One must also consider the sources of financing, the risks, and the periods when bitcoin regains the advantage. After all, a 12% return catches the eye, but it is still necessary to know who pays the bill.