Strategy, the world’s largest Bitcoin [BTC] treasury, wants to maximize its best-performing preferred stock, Stretch (STRC), to accelerate its buying spree. 

On Friday, the firm’s chairman, Michael Saylor, proposed changing the current 11.5% monthly yield to be paid out semi-monthly. The proposal will go up for a vote during the shareholder meeting in June. 

Saylor’s on why STRC needs a revamp

According to the treasury firm, the move would be net positive.

If approved and adopted, we believe this would lead to reduced reinvestment lag, enhanced liquidity, market efficiency, and increased price stability.

For the uninitiated, STRC’s yield has made it very attractive. As of writing, the stock has hit over $6 billion in market supply in less than five months since its debut. The firm CEO, Phong Le, called its massive success their ‘iPhone moment.’ 

In fact, since July, the +$6B raised by STRC has mostly been used for buying over 69K BTC. 

It’s worth pointing out, however, that STRC is meant to stay stable around $100 to ensure it’s less volatile than the common stock MSTR. That’s how it’s designed to appeal to retail investors, who don’t want volatility but prefer yield with lower risk. 

But Saylor raised concerns that, despite their efforts, the product remains relatively volatile. 

Volatility has dropped from 13% to 2% since the launch. How do we decrease the volatility even more? If we doubled the frequency of the instrument, it would make it twice as good.

In other words, if the proposed changes drive more STRC demand, then the firm will likely accelerate its BTC buys. The firm currently holds 780,897 BTC and was close to surpassing BlackRock’s 798,026 BTC holdings. 

Potential impact of Strategy’s plan on BTC

According to Coinbase analysts, Strategy’s persistent BTC buys matter in the “supply tightening effect,” as long-term holders (LTH) add exposure amid falling exchange reserves. The analysts added,  

Strategy’s buying is likely to matter more when it helps facilitate a breakout at a key technical level, after which breakout traders, systematic funds, and momentum-driven bots can reinforce the move.

That said, BTC’s brief surge to $78K on Friday lifted Strategy holdings to $1.3 billion in unrealized profit. The firm suffered a +$10B paper loss when BTC slipped to $60K in early February. 

Likewise, the firm’s stock, MSTR, rallied 11.8% on Friday, boosting its mNAV (market to net asset value) by 8.7% to 1.25. In other words, the higher mNAV above 1 meant Strategy was in a position to raise more capital by selling more MSTR for BTC buys. 

Final Summary

• Strategy plans to double the STRC yield frequency to improve price stability and demand. 
• Coinbase projected that the firm’s persistent BTC buys would ‘tighten supply’ and accelerate breakout momentum for price. 

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Author: Benjamin Njiri