Strategy CEO Phong Le admits miscalculation behind STRC's 25% rout

Phong Le, the chief executive of Strategy, acknowledged that the firm had misjudged the scale of leverage that would enter STRC. That preferred stock, valued at $9.3 billion, saw its price fall by 25% over the summer.

STRC carries a 12% yearly dividend and is designed to hold close to its $100 par value. It dropped to roughly $75 in late June before recovering to $99.

How Borrowed Money Sank STRC Below $100

In an interview with Natalie Brunell, Le described the reasons behind the selloff. STRC’s stable price encouraged investors to borrow against Bitcoin (BTC) at around 6% and pocket the 12% yield from the preferred stock, he said.

A drop in Bitcoin put those loans under strain. Holders were forced to either pledge additional Bitcoin or offload STRC, Le explained, and that forced selling pushed the price down.

“We did not expect the amount of leverage that came into the system,” Le explained.

According to Le, traders later acquired STRC in the $75–$90 range, and he made personal purchases as well.

Why Strategy Chose Buybacks Over a Higher Dividend

Strategy unveiled a framework in late June that included a cash reserve, buyback approvals, and a provision to sell Bitcoin as necessary. The company started buying back STRC in late July.

Le noted that previous dividend hikes toward 12% failed to boost the price. Increasing the payout would also deplete cash and hurt common stockholders, he added. Buybacks reduce upcoming dividend costs.

Strategy’s cash reserve currently stands at approximately $5.1 billion, enough to cover about three years of dividends, Le said. Those funds are restricted to paying preferred dividends and interest on the company’s convertible bonds.

What It Means for MSTR Shareholders

The current STRC buybacks are financed by selling common stock (MSTR) and possibly Bitcoin, according to Strategy. Le stated that 95% of his compensation depends on MSTR’s stock price and encouraged shareholders to take a three-year view.

Institutional ownership of STRC has risen to around 30% from 20%, Le reported. He predicts the stock will climb back to $100 as leveraged traders are replaced by long-term investors.

“$STRC is a passenger jet. $BTC is a fighter jet. $MSTR is a rocket ship. Buckle up,” Le said in a recent post.

The next dividend payment for STRC will be made on October 15 to shareholders recorded as of September 30, Strategy confirmed.