Strategy’s bitcoin-backed preferred stock is now trading well below its $100 par value, a sign that investors are pricing in risk around the company’s ability to keep paying dividends. The preferred shares, which were issued earlier this year and tied to the firm’s massive bitcoin holdings, have slipped to around $92 in recent trading.
Preferred stock under pressure
The discount to par suggests the market doubts whether Strategy can maintain its dividend payments. The preferred stock carries a 6% coupon, but with bitcoin’s price volatility and the company’s heavy reliance on debt to accumulate BTC, coverage ratios are getting squeezed. Strategy hasn’t said it will cut the dividend, but the trading level implies investors are bracing for that possibility.
Dividend coverage in question
Analysts following the company have flagged that Strategy’s bitcoin holdings generate no cash flow, meaning dividends must be paid from other sources — either from the company’s software business or from new capital raises. With bitcoin prices down about 15% from their peak this year, the margin for error is thin. The preferred stock’s yield has climbed above 6.5% as the price dropped, a classic warning signal.
Strive’s SATA product adds competition
Adding to Strategy’s headaches, Strive Asset Management has launched a competing product called SATA that also offers bitcoin exposure with a yield component. SATA has attracted roughly $400 million in inflows since its debut last month, siphoning demand that might otherwise go to Strategy’s preferred shares. Strive’s product is structured differently — it’s an ETF that holds bitcoin futures and options — but it targets the same investor base looking for income from crypto.
The timing isn’t great for Strategy. The company is scheduled to report its next quarterly earnings on July 15, and investors will be watching closely for any update on the preferred dividend. If the stock stays below par, Strategy may find it harder to issue more preferred shares in the future — a key source of funding for its bitcoin buying spree.
