Michael Saylor promotes preferred stock tied to Bitcoin as a high-yield retirement investment option
In a notable move, MicroStrategy, the business intelligence firm, has launched a Bitcoin-backed preferred stock called STRC (Series A Perpetual Stretch Preferred Stock). This $2.8 billion offering, priced at $90 per share, features an initial 9% annual dividend paid monthly and is heavily collateralized by Bitcoin.
Peter Chung, head of research at Singapore-based Presto Labs, stated that the product is structured in a way that it mimics the economics of Money Market Funds (MMFs). The collateralization of STRC is such that for every $1 of STRC issued, about $5 worth of Bitcoin is held as collateral, providing over-collateralization aimed at securing dividend payments and protecting principal.
Key features of STRC include its perpetual preferred stock status, with no maturity date; a 9% initial annual dividend, paid monthly and cumulative with compounding; floating-rate dividends with monthly adjustments to keep the trading price near $100 face value; seniority, meaning it ranks above other preferred stocks and common stock, but below debt and STRF preferred shares; a dividend blocker mechanism; redemption and put options; and a change-of-control put option exercisable at liquidation value plus accrued dividends.
However, the Bitcoin-heavy nature of STRC presents certain risks, especially for retirees considering it for income. Bitcoin's price volatility could potentially put dividend payments and principal at risk, as a sharp fall in Bitcoin’s market value could decrease the collateral value backing STRC. STRC holders are also junior to debt instruments, meaning in a liquidation event, debt holders get paid first.
Moreover, the dividend payment risk is relevant, as failure to pay STRC dividends triggers the dividend blocker, which can affect other MicroStrategy securities. The perpetual nature of STRC also presents duration risk, although redemption provisions provide some exit opportunities.
Michael Saylor, MicroStrategy's CEO, has actively pitched STRC as a high-yield, Bitcoin-backed income product suitable for retirees. He emphasized the strong Bitcoin collateral and downside protections, which aim to secure stable dividend income. However, retirees should carefully consider the inherent risks of Bitcoin’s price volatility, the company’s credit risk, and structural features before investing in STRC as a source of income.
STRC trades on NASDAQ and offers daily liquidity, unlike traditional preferred stocks. The Bitcoin-backed preferred stock reported $10 billion quarterly profits due to Bitcoin's price surge and its monthly dividends are backed by MicroStrategy's massive Bitcoin holdings, which currently stand at 628,791 Bitcoin worth over $74 billion.
Despite the risks, Saylor remains optimistic about the crypto industry's future, noting the expected enthusiasm of this administration in its support of the crypto industry and the Bitcoin ecosystem. He also highlighted supportive regulatory developments in the crypto industry.
It is important to note that the responsibility of promoting Bitcoin-backed products to retirees lies with registered investment advisors managing the retirees' portfolios. In comparison to traditional retirement products, STRC offers higher yields, but with lower predictability.
In summary, STRC offers a high-yield preferred equity instrument collateralized by substantial Bitcoin holdings, with dividend protections and defined seniority, but carries risks tied to Bitcoin price fluctuations, company creditworthiness, and the perpetual preferred structure that retirees must evaluate.
- The Bitcoin-backed preferred stock, STRC, is structured similar to Money Market Funds (MMFs) and for every $1 of STRC issued, about $5 worth of Bitcoin is held as collateral, aiming to secure dividend payments and protect principal.
- The crypto industry, with products like STRC, offers retirees high yields, but with lower predictability compared to traditional retirement products, as the product's price volatility is inherent due to its Bitcoin collateral.
- MicroStrategy's CEO, Michael Saylor, emphasizes the strong Bitcoin collateral and downside protections in STRC, aiming to secure stable dividend income, but retirees should consider Bitcoin's price volatility, the company's credit risk, and structural features before investing.
- Bitcoin has been heavily accounted for in the financial landscape, with STRC trading on NASDAQ and reporting $10 billion quarterly profits due to Bitcoin's price surge, and its monthly dividends backed by MicroStrategy's massive Bitcoin holdings.
- Cryptocurrencies like Ethereum (ETH), Bitcoin (BTC), and others have found a place in personal-finance strategies for investments, with funds like trading in ETH, staking in Ethereum's smart contracts, and owning Bitcoin-backed preferred stocks like STRC.
