Comparing Bitcoin Giant Strategy to Terra Luna Is a STRC, Benchmark Says

Strategy’s Stretch (STRC) is facing notable pressure, but it doesn’t resemble the stablecoin that brought crypto to its knees in 2022, according to Benchmark-StoneX’s Mark Palmer.

Although the Bitcoin-buying firm’s flagship preferred stock evoked painful memories as it drifted to record lows last week, comparisons between it and Terra’s collapsed ecosystem remain “fundamentally misguided,” the investment bank’s analyst shared in a Monday note.

Palmer argued that STRC’s weakness has “fueled alarmist commentary across social media,” overlooking core differences between the dividend-paying product and two tokens, TerraUSD and LUNA, which erased $40 billion in market cap as they plummeted years ago.

“STRC is not a stablecoin,” Palmer underscored. “It is not backed by an algorithmic arbitrage mechanism, and it is not dependent on confidence in a reflexive token structure.”

Most stablecoins are backed by a combination of cash and U.S. Treasuries, but TerraUSD attempted to break that mold without any hard reserves, relying instead on a novel “mint-and-burn” framework with its sister token, LUNA, to artificially maintain its peg.

STRC, conversely, is indirectly backed by Strategy’s Bitcoin holdings. The Tysons Corner, Virginia-based firm signaled on Monday that it now owns 847,363 Bitcoin, a sum valued at $54.5 billion with the digital asset changing hands around $64,400.

As Terra’s ecosystem unwound, TerraUSD “depegged,” losing parity with the U.S. dollar as investors swiftly lost confidence in the protocol’s ability to remain stable. The project’s Anchor Protocol was famously known for offering a 20% annual percentage yield on deposits.

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

STRC, Palmer noted, is engineered to trade around the $100 mark, but its price has been cyclical since it debuted less than a year ago. When STRC trades at or above that threshold, Strategy issues more shares and uses the proceeds to purchase more Bitcoin.

The product has lingered below its $100 par value for several weeks, and some analysts now anticipate that the company will seek to increase the product’s dividend rate in an attempt to support its recovery back toward that level.

There are other levers that Strategy can pull as well. For example, the Bitcoin-buying firm has accumulated cash for three straight weeks, topping off its USD reserve as a way to communicate to preferred stockholders that dividend payments will continue flowing.

When STRC trades below the $100 mark, its ability to purchase Bitcoin may be constrained, but that doesn’t mean there’s a fundamental problem, Palmer wrote.

“There is a meaningful difference between stating that Strategy’s preferred stock funding engine has become less efficient,” he said, “and asserting that the company’s overall model is broken, as some of its detractors have suggested.”

The investment bank reaffirmed its $570 price target for Strategy. The forecast is far above the multi-year high of $457 that the company’s shares soared to in October.

On Monday, Strategy shares fell 2.8% to $109. The performance added to a negative streak, with the company’s stock price falling for a fifth straight trading day.