Comparing Bitcoin Giant’s strategy to Terra Luna is STRC, Benchmark says

Strategy Extension Facing (STRC). Noticeable pressurebut it’s nothing like the stablecoin that brought cryptocurrencies to their knees in 2022, according to Mark Palmer of Benchmark-StoneX.

Although the leading preferred stock of the buy bitcoin company triggered painful memories when it drifted into Record lows Last week, comparisons between it and Terra’s collapsing ecosystem remained “fundamentally misleading,” the investment bank analyst shared in a note on Monday.

Ballmer argued that STRC’s weakness “triggered alarmist comments across social media,” ignoring fundamental differences between the dividend-paying product and the two tokens, TerraUSD and LUNA, which… erased $40 billion in market value, where it has been declining for years.

“STRC is not a stablecoin,” Palmer stressed. “It is not supported by an algorithmic arbitration mechanism, nor does it rely on trust in a reflexive symbolic structure.”

Most stablecoins are backed by a mix of cash and US Treasuries, but TerraUSD has tried to break that mold without any hard reserves, relying instead on a narrative… “Mint and Burn” frame. With its sister symbol, LUNA, to keep it artificially linked.

Conversely, STRC is indirectly backed by Strategy’s Bitcoin holdings. The Tysons Corner, Virginia-based company noted Monday that it now owns 847,363 bitcoins, an amount worth $54.5 billion with the digital asset trading at about $64,400.

As the Terra ecosystem disintegrated, TerraUSD “decoupled,” losing parity with the US dollar as investors quickly lost confidence in the protocol’s ability to remain stable. The project’s Anchor Protocol was known for offering a 20% annual return on deposits.

The same language was used regarding STRC’s weakness on Thursday, as the product, which currently offers an annualized dividend of 11.5%, fell to $82.53. On Monday, the preferred stock closed flat at $88.65, or about 11.3% below its par value of $100, according to Yahoo Finance.

Ballmer noted that STRC was designed to trade around $100, but its price has been cyclical since its debut less than a year ago. When STRC trades at or above this threshold, the strategy issues more shares and uses the proceeds to buy more Bitcoin.

The product has remained below its face value of $100 for several weeks, and some analysts now expect the company to seek to increase the product’s earnings rate in an attempt to support its recovery back toward that level.

There are other leverages the strategy can pull as well. For example, a Bitcoin buyout stockpiled cash for three straight weeks, bypassing its US dollar reserves as a way to communicate to preferred shareholders that dividend payments would continue to flow.

When STRC is trading below $100, its ability to buy Bitcoin may be restricted, but that doesn’t mean there’s a fundamental problem, Ballmer wrote.

“There is a big difference between saying that the strategy’s preferred equity financing engine has become less efficient, and asserting that the company’s overall model is broken, as some of its critics have suggested,” he said.

The investment bank reiterated its $570 price target for the strategy. The outlook is well above the multi-year high of $457 that the company’s shares soared to in October.

On Monday, shares of the strategy fell 2.8% to $109. The performance added to a negative streak, with the company’s share price falling for the fifth day in a row.