Jeff Park explores Strategy's STRC preferred equity, its dynamic floating rate, alignment with Bitcoin treasury goals, and potential as a low-duration investment for shareholders.
Timestamped Overview
[00:00:00 - 00:03:18] Intro to Bitcoin Treasury Prefs
- Bitcoin treasury companies hold Bitcoin as a key asset, and leaders like Strategy issue special shares called preferred equities to raise money.
- These prefs are like a mix of stocks and bonds, but they can sometimes compete with regular shareholders for returns from Bitcoin holdings.
- Jeff discusses being cautious about prefs but sees MSTR’s new STRC as helpful for common shareholders.
- Authenticity in leadership, like being true to facts and ideals, is key when backing these companies.
- MSTR’s STRC is the biggest pref issuance yet, over $2.4 billion, marking a historic moment in finance.
[00:03:18 - 00:05:15] Overview of MSTR’s Pref Types
- MSTR has four prefs: STRF (bond-like for steady income), STRC (new floating-rate one), STRK (convertible with upside potential), and STRD (high-income but less protected).
- Prefs sit in a “waterfall” where higher ones get paid first if things go wrong, like in a bankruptcy.
- STRC is unique because its payout (dividend) changes monthly to keep its price stable at $100.
- Unlike fixed payouts in others, STRC adjusts based on market changes, making it experimental.
- This creates new ways to price and trade these shares tied to Bitcoin.
[00:05:15 - 00:10:10] How STRC Works Like a Floater
- STRC is compared to a money market fund (safe, short-term savings), but it’s not exactly that since its rate isn’t tied to a standard like SOFR.
- The payout adjusts if interest rates or credit risks change, but it’s fully up to MSTR’s discretion.
- If credit spreads widen (meaning higher risk), STRC pays more; if they tighten, it pays less—aligning it with stock performance.
- This can create a “doom loop” if things go bad (higher payouts drain resources) or a positive loop if good.
- It’s more like equity (stocks) in behavior than a traditional bond.
[00:10:10 - 00:15:44] Seniority and Market Oddities
- If STRC’s price moves alone, it could affect other prefs’ values through arbitrage (buying cheap, selling expensive).
- STRF is senior to STRC, meaning it gets paid first, which is unusual since floaters are often safer.
- None of these are true bonds; they’re junior to real debt and meant for Bitcoin exposure.
- MSTR promised STRF as the top pref, so STRC had to be below it, creating a puzzle in structure.
- This setup questions if STRC can truly act like safe cash despite its junior position.
[00:15:44 - 00:24:46] Alignment, Portfolios, and Outlook
- STRC is bullish for MSTR stock as it’s aligned: good equity performance means lower payouts, boosting upside.
- It enhances volatility, which helps Bitcoin treasuries grow by turning energy into income.
- Jeff suggests a portfolio: 30% STRF, 30% STRC, 40% Bitcoin for diversification over just STRK.
- STRC could attract new investors seeking yield without trading complexity.
- Despite FUD (fear, uncertainty, doubt), this innovation rejuvenates finance with Bitcoin.
Notable Quotes
Authenticity in Leadership
Professor Julie that Tim Kotzman had hosted on his Bitcoin Treasury Investor Day where she talked about the importance of authenticity as one of the markers as to how you find leaders and CEOs that you want to back in this space the qualities of being true to fact, true to self and true to ideal.
Jeff Park @dgt10011
Prefs as Adversarial
Because of the capital structure as a liability stack is a close bounded box, that at some level all these securities are somewhat adversarial, right? They're of the liability stack that are ranking through a waterfall for which they attach to the assets that are bitcoin.
Jeff Park @dgt10011
STRC Alignment
STRC stretched is maybe for the first time a pref equity insurance that I do feel very compelled is in fact equity aligned, unlike some of the other prep issuances that could otherwise have been understood to be a little bit more adversarial.
Jeff Park @dgt10011
Floating Nature
STRC actually has a dynamic dividend that adjusts monthly in a variable fashion with the entire goal to achieve the price of par at 100.
Jeff Park @dgt10011
Doom Loop Risk
In the worst case scenario, if this was the only debt instrument in the capital structure, you could imagine this is the kind of thing that would otherwise cause what is called a doom loop, right? The race to the bottom.
Jeff Park @dgt10011
Portfolio Idea
If we were to imagine a three asset portfolio for the first time, it's now possible to me to imagine that STRK could actually be split out into STRF and STRC. So in fact instead of owning 60, 40, you could own 30 STRF, 30 STRC and 40 BTC.
Jeff Park @dgt10011
Innovation Outlook
Just because these things are strange and unconventional doesn't mean it's wrong. It could also be exactly what we need to rejuvenate different kinds of financial innovation for people to understand what Bitcoin could look like a credit instrument in a way that hasn't been done before.
Jeff Park @dgt10011