Key facts
- Strategy's (STRC) preferred stock is not comparable to Terra's collapsed stablecoin ecosystem, according to Benchmark-StoneX analyst Mark Palmer.
- STRC is indirectly backed by Strategy's Bitcoin holdings, which total 847,363 BTC.
- Unlike TerraUSD, STRC is not a stablecoin and does not rely on an algorithmic arbitrage mechanism.
- STRC recently traded below its $100 par value, offering an 11.5% dividend.
- Benchmark maintained a $570 price target for Strategy shares.
Benchmark-StoneX analyst Mark Palmer has asserted that Strategy's (STRC) preferred stock, despite recent price declines, is fundamentally different from the collapsed Terra Luna ecosystem. Palmer argued in a Monday note that comparisons between STRC and the stablecoin that erased $40 billion in market cap are 'fundamentally misguided.'
Palmer emphasized that STRC is not a stablecoin, lacks an algorithmic arbitrage mechanism, and is not reliant on confidence in a reflexive token structure, unlike TerraUSD. Most stablecoins are backed by cash and Treasuries, but TerraUSD attempted to maintain its peg through a 'mint-and-burn' framework with its sister token, LUNA, without hard reserves.
STRC, conversely, is indirectly backed by Strategy's significant Bitcoin holdings. The firm announced on Monday that it now owns 847,363 Bitcoin, valued at approximately $54.5 billion. While STRC traded as low as $82.53 last week and closed around $88.65 on Monday, approximately 11.3% below its $100 par value, Palmer noted its price has been cyclical since its debut less than a year ago.
When STRC trades above its $100 par value, Strategy issues more shares to buy more Bitcoin. The stock has lingered below par for several weeks, leading some analysts to anticipate a potential dividend rate increase. Strategy has also maintained its USD reserve by accumulating cash for three consecutive weeks to assure preferred stockholders of continued dividend payments. Palmer clarified that a less efficient funding engine for Strategy's preferred stock is distinct from asserting the company's overall model is broken.
Benchmark reaffirmed its $570 price target for Strategy shares, which is significantly above the company's multi-year high of $457 reached in October. Strategy shares fell 2.8% on Monday, marking their fifth consecutive day of declines.