In short
- Strategy’s Stretch (STRC) may be volatile, but it’s far from the stablecoin that powers the Terra ecosystem, according to Mark Palmer of Benchmark-StoneX.
- The Bitcoin-buyers of the firm’s flagship preferred stock is designed to trade at a certain level, but cannot “depegging” in the technical concept, he wrote.
- STRC fell to $82.53 last week, and on Monday, it recouped some losses to close around $88.65.
Strategy’s Stretch (STRC) is meeting known speedbut it is not the same as the stablecoin that brought crypto to its knees in 2022, according to Mark Palmer of Benchmark-StoneX.
Although the history of the Bitcoin buying industry brought back painful memories when it first got going. low profile last week, comparisons between them and Terra’s fallen universe remain “fuzzy,” the bank’s analyst shared on Monday.
Palmer said that the weakness of the STRC “has fueled public comments on social media,” noting the wide gap between the payouts and the two indices, TerraUSD and LUNA, deleted $40 billion in market capitalization when it dropped years ago.
“STRC is not a stablecoin,” Palmer said. “It’s not supported by an algorithmic arbitrage system, and it doesn’t rely on trust in a virtual machine.”
Most stablecoins are backed by a mix of funds and US Treasuries, but TerraUSD tried to break the mold without a hard deposit, relying on a ledger. “Mint-and-burn” frame and the sign of his sister, LUNA, to keep her nail.
STRC, by contrast, is directly funded by Strategy’s Bitcoin Holdings. The Tysons Corner, Virginia-based company announced Monday that it now has 847,363 Bitcoins, a currency worth $54.5 billion and digital assets changing hands at about $64,400.
When Terra’s ecosystem failed, TerraUSD “fell,” losing strength against the US dollar as investors lost confidence in the system’s sustainability. The project’s Anchor Protocol was well known for offering an annual yield of 20% on deposits.
The same language was used in relation to the weakness of STRC on Thursday, as the stock, which currently offers an 11.5% annual dividend, fell to $82.53. On Monday, the preferred stock closed at $88.65, or about 11.3% below its $100 price, according to Yahoo Finance.
STRC, Palmer said, was designed to trade around the $100 mark, but the price has been around since it started to decline a year ago. When STRC trades at or above its level, the Strategy issues more shares and uses the money to buy more Bitcoin.
The stock has been below its $100 level for several weeks, and some analysts expect the company to increase the stock’s interest rate in an attempt to support its recovery.
There are other tools that Strategy can draw on as well. For example, a Bitcoin trading firm has raised funds for three straight weeks, adding to its USD reserves as a way to communicate with its stakeholders that dividend payments will continue to flow.
When STRC is trading below the $100 mark, its ability to buy Bitcoin may be difficult, but it does not mean there is a serious problem, Palmer wrote.
“There is a big difference between saying that Strategy’s engine that loved the company’s money has started to slow down,” he said, “and confirming that the entire model of the company is broken, as some of its critics have said.”
The investment bank reaffirmed its $570 price target on Strategy. The forecast is above the multi-year high of $457 that the company’s shares hit in October.
On Monday, Strategy shares fell 2.8% to $109. The activity added to a negative trend, with the company’s share price falling for the fifth day in a row.
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