Bitcoin-linked stock offering 11.5% interest, will Strategy's huge gamble succeed?

▲ Strategy, Bitcoin (BTC)/AI generated image ©

Amidst the launch of Strategy's new financial product, which guarantees a high return of 11.5% based on Bitcoin (BTC) and is sucking up market funds like a black hole, there's a sharp divergence between cheers for an innovative investment tool and warnings from experts about a dangerous gamble that could collapse at any time.

According to DL News on April 23 (local time), STRC, a preferred stock recently issued by Strategy, is gaining immense popularity among investors hungry for high returns. The company used funds raised through this stock to acquire an additional 34,164 Bitcoins worth $2.5 billion last week, with approximately 85% of the total purchase funds covered by STRC sales.

STRC's biggest appeal is the regular payment of an exceptional 11.5% annual dividend, collateralized by its Bitcoin holdings. Satish Patel, an investment analyst at CoinShares, analyzed that the dividends from this product are classified as a return of capital, not ordinary income, offering significant tax-saving benefits to high-income investors seeking to avoid high bond coupon taxes. He also explained that as the volatility of this stock has recently decreased, it is being perceived less as a simple proxy investment for Bitcoin and more as a stable high-yield generation tool.

However, experts point out that fatal risks lurk behind these dazzling returns. Dom Kwak, co-founder of EasyApp and a former Goldman Sachs analyst, warned that using Bitcoin, a highly speculative asset, as collateral for preferred stock could become an extremely dangerous game if the market enters a bear phase. In particular, the company's ability to suspend dividend payments or arbitrarily adjust the payout rate at any time is considered the biggest trigger.

Indeed, if the STRC price falls below $100, the company will no longer be able to issue new shares, which would mean the collapse of its entire capital raising structure. Given that the product traded around $93 in the past three months, the risk of dividend suspension and fundamental collapse due to a Bitcoin price drop is a realistic threat that cannot be ignored.

Nevertheless, there is a view in the market that Strategy will desperately try to maintain dividends because a dividend suspension would mean the cutting off of the company's lifeline. Investors are keenly watching whether this unprecedented financial product, which relies entirely on Bitcoin's value while offering both perpetual dividends and tax benefits, will remain a groundbreaking innovation or end up as a grand mirage.

*Disclaimer: This article is for investment reference only and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*