Strategy’s 4th Preferred Stock: STRC Is Here To Attack Money Market Funds

Summary Strategy’s capital structure is a masterclass in financial engineering, creating a Bitcoin-backed yield curve to attract diverse investor capital efficiently. The new STRC preferred stock is designed as a low-duration, high-yield instrument to directly compete with money market funds, offering superior yield and stability. STRC’s price stabilization mechanisms ensure principal preservation and yield competitiveness, drawing capital away from traditional cash equivalents and fueling further Bitcoin accumulation. I remain bullish on Strategy’s common and preferreds, as each issuance strengthens the capital stack, increases intrinsic value, and perpetuates the Bitcoin accumulation flywheel. If you’ve been following my coverage of Strategy’s ( MSTR ) capital structure, you know I’m a firm believer in Saylor’s vision to develop Strategy into the ultimate levered Bitcoin ( BTC-USD ) investment vehicle by essentially selling superior financial securities to the market. I previously covered ( STRK ) and ( STRF ) extensively here and here , while my previous article on STRD, their third preferred stock, highlighted how Saylor’s financial engineering creates a self-reinforcing flywheel, capturing capital from diverse investor classes to fuel Bitcoin accumulation. With STRC (STRC), Strategy takes this utterly corporate finance textbook-shuttering plan to a new level, introducing a low-duration, high-yield security designed to compete directly with money market funds. So, beyond further opening up its capital stack, Strategy is set to optimize its yield curve further. In fact, as I am about to explain, Strategy is setting itself to attract capital at unprecedented efficiency through STRC by creating what you can think of as a “black hole” in the world of short-term yield parking. Building the Yield Curve We have so far witnessed how Strategy’s capital structure is a carefully crafted ecosystem, with each preferred (STRK, STRF, STRD, and now STRC) serving a distinct purpose in attracting capital from different investor profiles, which, in turn, Strategy leverages by attaching an at-the-money offering program. By issuing securities with varying risk/reward characteristics, Saylor and Co. is effectively building a Bitcoin-backed yield curve, where each instrument settles a specific niche in terms of duration, yield, and seniority. This system enables Strategy to tap into a broad spectrum of capital markets, ranging from risk-tolerant equity investors ( MSTR ) to conservative fixed-income seekers ( STRF ), to those seeking a middle ground ( STRK ) or even those willing to sit at a lower seniority level for higher yield ( STRD ), while minimizing financing costs and maximizing Bitcoin accumulation. MSTR’s Yield Curve (STRC IPO Presentation) In my previous article, I explained how the introduction of STRD, a high-yield, junior preferred stock with a 10% dividend, was an indirect move to elevate the creditworthiness of STRF, the senior-most preferred in the capital stack. By offering a “junky” security with the exact same 10% yield as STRF, Strategy effectively pushed STRF’s perceived safety higher, encouraging investors to bid up its price above par, thus lowering its effective yield. This dynamic has allowed Strategy to issue STRF at a premium, raising capital at a lower cost while reinforcing the collateral base backing the entire capital structure. The result is a virtuous cycle where each new issuance strengthens the senior securities, attracts more capital, and funds further Bitcoin buys. MSTR’s Preferred Stock Yields (STRC IPO Presentation) You can see in the chart above how my prediction played out quite accurately. The moment STRD entered the chat, the market has been chasing all three preferreds higher in order for each to more accurately reflect its underlying risk/reward ratio. The reality that the market is also getting increasingly educated about how these products are indeed superior to their tradfi peers (i.e., STRF is a superior credit instrument versus any other super long-term competitor, from the 30-Y US bond to Austria’s 100-Y government bond ) has also contributed to this rally. It’s also clear that capital keeps flowing steadily into Strategy’s preferreds, especially when you compare them to the broader market. Just look at the underwhelming performance of the iShares Preferred and Income Securities ETF ( PFF ), which has lagged well behind. Again, this makes total sense as Strategy’s preferreds are structurally superior in every shape or form, including the fact that they are overcollateralized multiple times over against Strategy’s BTC holdings. MSTR’s Preferreds vs. PFF (STRC IPO Presentation) STRC: The Money Market Competitor Now, here comes STRC, a perpetual preferred stock with a variable monthly dividend , initially set to deliver a high yield but (in my view) engineered to stabilize just above money market fund rates. Unlike say STRF, which competes with ultra-long-duration instruments due to its perpetual nature, STRC is engineered to be a low-duration security, offering investors near-cash-like stability with a superior yield. This positions STRC as a direct competitor to money market funds , which typically provide low yields (currently around 4-5% in a high-rate environment) but are prized for their liquidity and principal preservation. The financial engineering behind STRC is nothing short of marvelous (or crazy, depending on which camp you are sitting in). Strategy basically aims to maintain STRC’s price close to its $100 par value through a series of levers: If STRC trades at $101 or above: Strategy can (1) decrease the dividend rate, (2) issue additional STRC via secondary offerings at or below $101, or (3) call STRC at $101. If STRC trades at $99 or below: Strategy can (1) increase the dividend rate or (2) cease selling STRC in at-the-market (ATM) offerings below $99. STRC’s Price Manipulation Mechanisms (STRC IPO Presentation) These mechanisms synthetically ensure that STRC remains a highly attractive, stable investment, mimicking the principal preservation of money market funds while offering a higher yield. Initially, STRC’s yield may be elevated to draw capital, potentially in the 9.5% to 10% range. However, as the security gains traction, I believe Strategy will fine-tune the dividend to hover just above money market fund rates, say, 4% to 5% in 3% to 3.5% rate environment. This strategy ensures STRC remains competitive compared to investing in a money market fund, thus gradually drawing capital away from traditional cash equivalents. It’s essentially an attack on money market funds. Now here’s where things get really interesting. In a scenario where the money market fund rates drop to 1-2% in a low-rate environment (as they did in the early 2020s – they, in fact, went negative in Europe ), STRC could offer a 2.5% to 3% yield, providing a premium while still being an ultra-low-cost financing tool for Strategy. This is a win-win as STRC holders enjoy a higher yield than money market funds with comparable principal stability, while Strategy secures cheap capital to acquire Bitcoin, which they project will appreciate at a CAGR of 21% over the next 21 years. The Flywheel: Why This Isn’t a Ponzi Scheme I know that many believe that Strategy’s non-stop issuance of common and preferred shares looks like a Ponzi scheme, as it relies on new capital to sustain dividends and fuel Bitcoin purchases. However, this perspective misses the mark of Strategy’s engineering. As I argued in my STRD article, Strategy isn’t just issuing securities for the sake of raising capital. It is instead creating superior financial products that attract capital precisely because they offer better risk/reward profiles than competing instruments. Now, skeptics will proudly counter by arguing that this structure depends on MSTR’s common stock trading above par to fund preferred dividends, which is both very risky and dilutive. However, the accretive nature of Strategy’s preferreds supports the common stock’s premium . By issuing STRC, STRD, STRK, and STRF, Strategy raises capital at low costs, acquires more Bitcoin, and strengthens the collateral base backing the entire capital stack. This increases the intrinsic value of MSTR’s common stock, thus justifying its >1mNAV multiple. In the flywheel effect, each preferred issuance fuels Bitcoin accumulation, which boosts the value of the common per share, which in turn supports further preferred issuances. Besides, issuing common stock above NAV to pay preferred dividends is by definition accretive. If your common stock is trading at 2x NAV, you are selling $1 for $2 to pay dividends, which is something you want to do all day long. This is why, as long as, in theory, the engineering after Strategy’s instruments remains legit, I remain bullish on common and its preferreds. I have also been selling OTM puts on the common as the premiums are just too juicy not to harvest them. I am looking forward to reading your thoughts on STRC. I know it’s a very new instrument, and there’s nothing quite like it on the market, so feel free to leave your questions, and I will try to address each one to the best of my ability.

Source: Seeking Alpha