There is now $15 billion sitting in three businesses that are being marketed to bitcoin holders as a safe and smart way to gain exposure to bitcoin: Strategy is preferences, STRC, and SATA. The line is the same for all three. Tax benefits. 11.5% income. Powered by bitcoin. Money market risk. 82.7% of buyers are sellers. Every word of that statement is wrong, and the security that those consumers have is built to fail in the bitcoin environment they claim to be using.
Pitch and Story. The Great Design Is Real
STRC is an unsecured, unsecured, permanent unit. There is no maturity date. There is no cheating on one satoshi of Strategy’s bitcoin treasury. This section is discretionary, which means the board can cut it at any monthly meeting without notice, without support, and without a vote. S&P rated provider B-, four points in the food category. None of that information appears in the ad.
Match the items against the words in the text. “Bitcoin powered” describes security without a claim on the same currency. “Money-money-money-like” describes an instrument rated four notches below money grade with no maturity and smart coupons. “Security funds” means payments that the organization manages and a source of funds that is a security only. Any statement in the advertisement is negated by the indenture.
That is not a money market fund. It is a speculative product like a loan that is dressed up as a safe advertisement, and 82.7% of it is on sales websites. Of STRC’s $10.7 billion in assets, about $8.8 billion is from bitcoin traders who are only in one-off debt. There are no polite words to express this. It’s a bag, and the seller is holding it.
The Way To Make Money Feeds Itself
The risk factor in STRC is not that the profit is high. It is that profit cannot be paid from the business. Strategy’s software startup business generates $477 million in annual revenue. All of their preferred positions now exceed $1.2 billion, a ratio of 3.5 to 1. The difference is not covered by dividends. It is closed by issuing new STRC shares at or above the dividend, or discounting MSTR common shares, with the proceeds reinvested to pay existing shareholders.
It’s a way to show money. It works when the STRC trades above the threshold and breaks the expiration date. Anything that puts pressure on the price, a credit crunch, a missed return, a bitcoin crash, a stock market shutdown, takes away the channel that this sector depends on. There is no plan B in the indenture. There is no trick in bitcoin mining. No administrative fees are required to be remitted. There is the next phase offered, and the next, until bitcoin gets the company out of trouble or disrupts the system.
Then there is the value of shares. The monthly coupon has moved from 9% to 11.5%, putting $268 million in annual demand. The tree only moves in one direction. Each month’s increase makes the currency gap widen, the output of the sector shrinks, and inflation becomes more difficult. The strategy designed to make STRC attractive to new buyers is the same strategy that creates stress for the issuer and accelerates the flow of money when stress hits.
The Mythical Buyer and the Math That Buries Him
The security of the Digital Credit group goes like this: the information center is on the other side. Insurance companies need productivity. Pension funds are needed for a long time. Fixed income desks need medicine. Digital Credit is the bridge to bitcoin.
That defense falls on his mind. Any entity that distributes unsecured, limited, perpetual, depository receipts for the bitcoin economy must first register under the terms of the agreement. Every organization that works on bitcoin writing directly offers to view bitcoin, where the credit risk is eliminated and the vulnerability that depends on the method is controlled. Consumers who are informed and rational are not in this product. The current buyer, at 82.7% concentration, is the seller.
Path-dependent math completes the argument. Passing 5,000 similar bitcoin options at 10% increase rate, the sample loan produces 12.3% Chance of default, and 21.9% Chance of 50.7% another chance of being forced to sell bitcoin with the provider on the eight-year cycle. At a 15% increase, STRC has a 44.6% chance of ending below $85 even in ways that bitcoin returns to a new high.
The wealth of bitcoin holders depends only on where the bitcoin ends up. The results of those with STRC depend on any drop in the middle, because the same mechanisms that pretend to protect the sector in calm are the mechanisms that destroy the principal of the holder in stress. The product is very fragile in the bitcoin system that the underlying stock takes without consequence.
Bitcoin Was Built To Kill Real Estate
The whole reason Bitcoin exists is to remove peer-to-peer risk, storage risk, and financial obscurity. STRC, Strategy preferences, and similar tools also bring all three under the trade that no other tool can support. In fact, they don’t need any machines: bitcoins are stored together with a US Treasury The income ladder produces a similar income profile, with more assets and no corporate issuer in the middle.
The market will eventually close the gap between the security sellers think they bought and the security they actually own. Anyone reading the table of contents and distribution anyway is eagerly writing Saylor’s investment plan with the capital they think they bought in the money market fund.
This is a guest post by Glenn Cameron, a product developer at Fedi. The opinions expressed are their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
