STRC: the bullshit dividend preferred stock

[Free Market Capitalist]

Yup, complete genius!

Current Value $56.57B
Total Cost $63.87B

Nothing screams genius more than having to pay 11.5% on money you invested with  ..lol ironically  -11.4% loss!
The only genius thing in this is that he is playing with other people's money, so as long as the planet is still full of idiots with money, he is safe.
The idiots, well, not so much!

I've got that guy you quoted on my ignore list—I don't remember exactly why but I guess so I don't waste my time on bullshit like that.

I think that if the price of Bitcoin keeps falling, we’re going to have a problem, because the price of STRC will fall too, and if it drops substantially—below $90 or more—it won’t matter how much Saylor wants to increase the dividend. On top of that, more and more people are questioning the sustainability of that dividend.

Saylor boasts about 80% of STRC being held by retail investors. People who usually don't stop to do the simple math you just did. What will happen if the price of STRC drops so much that those retail investors realize the stock price has fallen so far that even the dividends they receive aren't worth it? I think they'll panic. And we already know how retail investors tend to behave in panic situations.

And I say we’ll have a problem because if Strategy finds itself in real trouble, it’s likely to push the price of Bitcoin even lower, and those of us who hold Bitcoin will get screwed too.

[Alpen]

Let’s just call a spade a spade. STRC is the hot product from Strategy, Michael Saylor’s company, which is currently paying an 11.5% dividend based on a fairy tale.

The premise when the product was launched last year was that Bitcoin would appreciate by 30% CAGR over the next 20 years, and of that 30%, Saylor would use his Bitcoin purchases to smooth out volatility, allocating approximately 10% to pay dividends on the preferred shares—including STRC—and the remaining 20% would go toward increasing the value of the common stock.

This is total BS for one very simple reason: with the buying strategy Strategy has executed—which has consisted of buying heavily when the price skyrocketed and little or nothing when it fell—the return on those purchases is much lower than the asset’s return. Currently, Bitcoin’s cumulative return over the past 5 years is 16%, which is just a 3% CAGR (far from what Saylor is predicting) while Strategy has a negative return on its Bitcoin purchases of 12%.

The numbers are just too shocking, which is why I've started a separate thread.

Saylor can keep paying that dividend as long as there are people who buy whatever he issues without thinking much. Do you know how it can pay dividends? From new investors who buy more STRC or MSTR. In other words, he needs new buyers of STRC to pay the dividends to those who already own the stock. Does that sound familiar to you?

You can see an example of his usual salesman BS that people swallow without thinking much here, where he makes a shoddy comparison of STRC with assets that aren't comparable.

Now Bitmine is about to launch the exact same kind of shares on the market. Tom Lee has decided to replicate Michael Saylor's clever trick, though he's promising a lower yield—under 10%.

[alani123]

Saylor can keep paying STRC dividends by also selling BTC and even if prices of BTC/USD fall more Strategy still has enough value in bitcoin to keep paying dividends for over 10 years. However there's some contradictions here.

If Strategy keeps selling BTC this would have a compounding effect on markets. Prices wold fall even more not just because of BTC being released to the market but also because of the sentiment the biggest owner of BTC selling would cause.

Then also if bitcoin keeps falling and Strategy has no cash, it affects their stock adversely as you said. Even more so because they can't hold BTC when it's down and they have to keep selling.

I think soon enough there will be sort of a fight between MSTR holders who want to keep BTC and STRC who want the dividend.

[Stive009]

Saylor can keep paying STRC dividends by also selling BTC and even if prices of BTC/USD fall more Strategy still has enough value in bitcoin to keep paying dividends for over 10 years. However there's some contradictions here.

If Strategy keeps selling BTC this would have a compounding effect on markets. Prices wold fall even more not just because of BTC being released to the market but also because of the sentiment the biggest owner of BTC selling would cause.

Then also if bitcoin keeps falling and Strategy has no cash, it affects their stock adversely as you said. Even more so because they can't hold BTC when it's down and they have to keep selling.

I think soon enough there will be sort of a fight between MSTR holders who want to keep BTC and STRC who want the dividend.

you hit the nail right on the head.

People keep acting like Strategy can just casually hand out dividends forever just because they’re sitting on a massive mountain of Bitcoin. But honestly, they're completely ignoring reality. Selling off BTC isn’t consequence-free. If they have to dump coins year after year, the market is obviously going to notice. It’s not just about the extra selling pressure hitting the order books; it’s the optics of it. When one of the biggest whales in the space is constantly selling, people are naturally going to freak out and start asking questions.
And you're so right about the clash between MSTR and STRC investors. They literally want completely opposite things. Most guys holding MSTR are in it for the pure, unadulterated Bitcoin exposure—they want the company to hoard every single Satoshi possible. But STRC holders? They couldn't care less about HODLing; they just want their regular dividend checks.
This whole setup works perfectly fine during a bull run when everyone's making money. But the second we hit a brutal, multi-year bear market, this whole thing is going to blow up. Those conflicting interests are going to pull the company apart. Management will be stuck in a nightmare scenario: do they protect their Bitcoin stack, or do they keep funding the dividend? Either way, they’re going to have to screw over one group of investors, and it’s going to get incredibly ugly

[alani123]

I forgot to add that there's also the systemic risk of an upcoming administration killing the loophole for tax free dividends based on the return on capital principle.

This would essentially make holding STRC much less competitive. Right now 11.5% sounds competitive based on any dividend stock. Now though it's become a loophole that's starting to get abused more widely. If legislators of an upcoming administration want to make tax collection more efficient I don't think they will keep letting this loophole slide. It's many millions in lost potential tax income that had already been lost singlehandedly due to microstrategy alone. And the US earns a decent percentage of its tax income through WHT and capital gains tax on dividends.

Let alone the fact that under different SEC chairs maybe what microstrategy is doing would have come under much more scrutiny.

[Free Market Capitalist]

I think soon enough there will be sort of a fight between MSTR holders who want to keep BTC and STRC who want the dividend.

I don't think there's that much of a conflict; a lot of people who own MSTR also own STRC. It’s true that when Saylor created STRC, he did so ostensibly to preserve value for MSTR holders (I seem to recall he had received complaints about the ATM), and he didn’t deliver on his promise, because he continued to ATM MSTR as if there were no tomorrow, and then, when he managed to ATM STRC, what he’s doing is placing those buyers ahead of MSTR holders in the capital structure. If anyone has figured this out, they’re probably no longer an MSTR investor, given how much the stock has dropped. The ones who remain are Saylormooners.

I forgot to add that there's also the systemic risk of an upcoming administration killing the loophole for tax free dividends based on the return on capital principle.

That is not correct, they are not tax free dividends, they are tax deferred. So if you buy an STRC share for $100, get $23 dividends in two years and sell on year 3 for $100 you will have to pay capital gains on those $23 after you sell, not the first two years for receiving the dividends.

[alani123]

Interestingly return on capital dividends being tax deferred makes them tax efficient to international investors too because for many countries there's no capital gains tax on listed assets, but a normal dividend would have been taxed. So there being no WHT tax still makes this a very attractive yield to internationals. But the US revenue services could still see tax deferred dividend loopholes as lost revenue in the future. Both because of US nationals paying lower/later taxes and also internationals.

Right now many asset managers like Leverage Shares Inc have created an entire series of ETPs which hold a single stock and pay dividends on selling some options, which is tax deferred income and there's also no WHT. I see a trend of the tax deferred loophole beeing abused now and I also don't think traditional fund managers are going to like their products losing edge. But if the loophole closes STRC becomes much less attractive automatically

[Free Market Capitalist]

Interestingly return on capital dividends being tax deferred makes them tax efficient to international investors too because for many countries there's no capital gains tax on listed assets, but a normal dividend would have been taxed. So there being no WHT tax still makes this a very attractive yield to internationals. But the US revenue services could still see tax deferred dividend loopholes as lost revenue in the future. Both because of US nationals paying lower/later taxes and also internationals.

 

Wrong again. That tax deferral applies only to U.S. investors. I am not familiar with the tax laws of every country in the world, so there may be some exceptions, but in general, if someone purchases STRC from anywhere else in the world, they must pay taxes on the dividends received, just like any other dividend.

[alani123]

Well that's the whole point there's a lot of uncertainty even now with these novel financial products.

A Return of Capital is not taxable based on the idea that investors receive their own money back. In the past this classification was used in cases where a big investment plan didn't take place and investors had the option to vote for receiving the cash previously in company reserves to their personal accounts. This sounds like a dividend but it's not taxed because it's not considered income.

Strategy is pushing this idea to its limits with a perpetual dividend stock that will be issuing dividends they're trying to classify as tax deferred. Asset managers are already accounting for the risk of a future re classification by US authorities. For instance look at what 21sgares said in their prospectus for an STRC product:
https://cdn.21shares.com/uploads/product_documents/FinalTerms/STRC_FinalTerms_AtInception.pdf

The Issuer may withhold or retain up to 30% of any distribution in order to
account for potential recharacterisation, dividend-equivalent treatment,
withholding obligations, retroactive adjustments or other tax-related
uncertainties relating to such distribution

Asset managers are already well aware of regulatory risks relating to such products and it makes perfect sense. Saylor is essentially abusing a loophole to make Microstrategy investment vehicles more competitive in the market. Maybe this can slide under a more crypto friendly administration like Trump's but there's nothing guaranteeing it will go on forever. Even if BTC USD starts doing much better, the regulatory risk remains.

[The Sceptical Chymist]

I haven't searched the interwebz in the past week, so I may as well ask this here:  Has Saylor made any more of those videos where he's blabbering on and on about the wonders of bitcoin and such?  Has he done any interviews or press releases?

I'm sorry, but for him it's got to feel like his nutsack is getting squeezed by a quality Black&Decker vise--and by extension his shareholders (though perhaps they just feel the cold metal right now).  Large corporate ownership of bitcoin has always tingled my taint even if I couldn't put my finger on exactly all the reasons it did so.  But oh lordy, after reading (1/6th) of this thread and the last page or so of the main thread about MSTR I'm starting to get a sense of why. 

After re-reading a lot of old posts in that main thread, my cringe starts to cringe.  I don't say that lightly, as I detest that word if only because it's been used to death by every youtuber, in tons of other media, and bla bla bla.  So badly do I hope that history hurries up and writes itself in indelible ink.

[FanEagle]

They had to sell some bitcoin to pay their dividends and the whole world went bazooka about it. I do not understand why people are caring this much about someone selling their bitcoins, he owns it, well the company does, but he owns the company basically, and he just wanted to sell some to pay dividends, he has every right.

Hating someone because they sold their coins makes absolutely no sense to me, plenty of people sell bitcoin every single day, just because the price crashed after he sold, is not his fault, he sold only 32 bitcoins, people sold more than that everyday, it's markets reaction that made it drop this much and not him. Some said he should have done it secretly, but this is a public company, of course he couldn't hide it.

[WillyAp]

People not working with or even close to MS just know why?
Laughable that is.  

It shows a bright light onto the person stating his/her opinion as a virtual member of the company.  

[Free Market Capitalist]

Strategy is pushing this idea to its limits with a perpetual dividend stock that will be issuing dividends they're trying to classify as tax deferred. Asset managers are already accounting for the risk of a future re classification by US authorities.

...

Maybe this can slide under a more crypto friendly administration like Trump's but there's nothing guaranteeing it will go on forever. Even if BTC USD starts doing much better, the regulatory risk remains.

Well, it’s not just that. A product like STRC would have had a much harder time launching in the EU, and I doubt it would have been approved because it pays interest based solely on the hope of what might happen in the future with Bitcoin’s returns—not on money earned by the company. And in the unlikely event that it had been approved, seeing those ads where he markets the product as a safe investment similar to deposits or savings accounts would have brought the regulator down on him.

It’s clear that Saylor is well-connected with this U.S. administration, and he’s been friends with Eric Trump for a long time.

I haven't searched the interwebz in the past week, so I may as well ask this here:  Has Saylor made any more of those videos where he's blabbering on and on about the wonders of bitcoin and such?  Has he done any interviews or press releases?

The last thing I saw was that he'd been keeping quiet about the issue, but maybe in the last couple of days he's said something—some of his usual BS.

They had to sell some bitcoin to pay their dividends and the whole world went bazooka about it. I do not understand why people are caring this much about someone selling their bitcoins, he owns it, well the company does, but he owns the company basically, and he just wanted to sell some to pay dividends, he has every right.

It is clear it's not the only thing you don't understand about this.

[alani123]

Did microstrategy really have to sell 32 BTC? I'm very much puzzled by how small that number was. Supposedly they had enough cash for 6 months of divs...

[Majestic-milf]

Did microstrategy really have to sell 32 BTC? I'm very much puzzled by how small that number was. Supposedly they had enough cash for 6 months of divs...

It's crazy right, considering how the amount doesn't affect the total holdings of over 840,000 BTC. Really why did he have to sell?

[WillyAp]

Did microstrategy really have to sell 32 BTC? I'm very much puzzled by how small that number was. Supposedly they had enough cash for 6 months of divs...

I bet they got the 32 BTC fairly cheap.
Imagine getting them at 30k and selling them for 75. That is good money.
People get hang up on average price. That is their mistake.

[Free Market Capitalist]

Did microstrategy really have to sell 32 BTC? I'm very much puzzled by how small that number was. Supposedly they had enough cash for 6 months of divs...

Supposedly, it was to “prove” to regulators and rating agencies that Bitcoin is a liquid asset—which is just more of Saylor's nonsense, because even if the regulators don't own Bitcoin, they know full well that Bitcoin is the most liquid digital asset.

As a result, he finds himself at a crossroads, because if selling just 32 Bitcoins caused that dip, imagine if at some point he has to sell 3,200 or 32,000 Bitcoins.