Strategy (MSTR), the leading corporate holder of bitcoin, has described the launch of its Perpetual Stretch Preferred Stock (STRC) as the firm’s “iPhone moment,” and despite its support in BTC accumulation, risks remain.

Before digging into these risks, it’s worth noting that while the focus is on STRC, specifically over its larger liquidity and adoption, they also apply to similar preferred offerings, including another bitcoin treasury company, Strive’s preferred offering, SATA.

These instruments are “not well understood through the lens of traditional credit or equity,” and instead require a different analytical framework, said NYDIG’s Global Head of Research Greg Cipolaro in a note.

By design, STRC targets a steady $100 share price, using a variable monthly dividend to keep trading near that level. The approach has already supported multi-billion dollar issuance and the acquisition of more than 50,000 bitcoin, according to STRC.live data.

At its core, STRC works by adjusting yield to steer price. If shares trade above $100, the company can trim the dividend to cool demand. If shares fall below that level, it can raise dividends to attract buyers. Keeping the price anchored lets the firm issue new shares near par, bringing in capital that is then deployed to buy bitcoin.

The novel financial instrument has been a success so far. Not only has it allowed Strategy to buy more than $3.5 billion worth of bitcoin, but it has also attracted institutions that have added STRC to their balance sheets.

In practice, the product resembles a money market fund with a floating yield of 11.5%, far above U.S. Treasuries. The appeal hinges on the steady $100 price tag coupled with high yields.

When conditions are favorable, NYDIG’s Cipolaro wrote, the mechanism creates a powerful feedback loop. The loop, in which STRC trades near par, enables the firm to raise capital, deploy proceeds to buy more bitcoin, expand the asset base, and sustain investor confidence. That confidence sustains additional issuance.

“As long as preferreds remain anchored near par, equity trades above the NAV, and capital markets stay open, the flywheel drives ongoing bitcoin demand,” Cipolaro wrote in the note.

Still, not everything’s rosy.

BitMEX Research has written in a note titled “A bit of Stretch” that it sees the risks related to the product as “substantially greater than those related to short duration U.S. treasuries.”

Where the risks actually sit

Bullish investors often point out that STRC is well-capitalized and could easily cover dividend payments, given Strategy’s massive 761,068 BTC war chest and more than $2.2 billion in cash reserves. That’s around 50 years of covered dividend payments, while the company can still lower STRC’s dividend over time to further the coverage. On top of that, there are monetization options for the company’s massive bitcoin stash, which could further dividend payments.

The risks, however, aren’t based on dividend coverage at all, according to NYDIG’s Cipolaro.

“The appropriate way to assess risk in STRC and SATA is through the lens of governance and subordination rather than focusing solely on payment risk,” he wrote.

The mechanism STRC uses also creates a stress path. If bitcoin drops and confidence in Strategy’s balance sheet weakens, STRC could slip below par.

To defend the price, the company would need to raise the dividend. Higher payouts increase cash obligations, which can, in turn, worry investors and push the price lower. That feedback loop is a familiar one in credit markets.

In a standard corporate setting, that cycle can end in forced asset sales. Companies may have to sell core holdings to meet rising obligations, locking in losses at the worst time. For Strategy, that would mean selling BTC into a falling market. However, Strategy’s Michael Saylor has repeatedly said he won’t sell the company’s bitcoin stack.

The STRC terms, however, give the company another option. The target price is not a binding promise. If conditions turn, Strategy can reduce the dividend rather than increase it.

According to BitMEX Research’s reading of the SEC filings related to STRC, Strategy can “at its absolute discretion, lower the dividend rate by up to 25 bps a month, no matter what else is happening.”

Unpaid dividends can, in addition, accrue without triggering default or forcing asset sales. As BitMEX Research put it, instruments like these were “written by the company for the company.”

Read more: Strategy’s latest massive bitcoin purchase offers insight into its evolving funding model

Built to bend, not break

That flexibility shifts what would happen to STRC in cases of a crisis.

Instead of a company caught in a squeeze, the pressure moves to the security holders. If the dividend is reduced, the yield becomes less attractive, and the market price can fall to reflect the new reality.

NYDIG’s Cipolaro made it clear in his note that the structure “can remain solvent while still delivering suboptimal outcomes for preferred holders due to the loss of confidence and funding access.” The risk isn’t a default on its dividend, but rather the loss of its attractiveness.

Strategy’s legacy software business does not cover those payments on its own. The model depends on continued issuance or balance sheet management tied to its bitcoin holdings.

The binding constraint is not income generation, but the combination of continued access to capital markets and sufficient asset coverage,” NYDIG’s Cipolaro wrote. The setup invites comparisons to structures that rely on new inflows to support payouts.

The difference here is that payouts are not fixed. If demand slows, the company can lower the dividend instead of maintaining a rate it cannot sustain. That feature helps protect the issuer but weakens the claim for investors seeking stability and income.

“When the music stops, if things become challenging for MSTR, instead of selling bitcoin, MSTR could just abandon the narrative that STRC is targeting stability,” BitMEX Research wrote. “This feels very favourable for MSTR and the dividend payments are therefore quite sustainable and affordable, in our view.”

Breaking the mechanism

Market impact will depend on how long the $100 anchor holds.

As long as demand for yield products remains strong and bitcoin sentiment is supportive, STRC can keep channeling funds into the company’s treasury strategy.

That, in turn, reinforces Strategy’s position as a major public holder of bitcoin. NYDIG has shown that bitcoin’s price stability is what enables the economic viability of at-the-market issuance of these products.

STRC and Striv’es SATA have seen their prices drop below par during periods of sharp bitcoin price declines, the firm’s research found. When that happens, “issuance becomes uneconomic, limiting the ability to raise capital and slowing the flywheel.”

The risk shows up when conditions change. A prolonged drop in BTC’s price or a shift in rates could test the price mechanism. If the dividend is cut to preserve cash, STRC could trade well below par. Losses would be borne by investors who treated the shares as a near-cash substitute.

“It resembles being short a put on bitcoin asset coverage, earning yield in exchange for bearing downside risk if bitcoin declines and erodes the asset cushion,” NYDIG offered as a frame for institutional investors. “Unlike a standard option, however, there is no fixed strike or maturity, and outcomes are path-dependent and shaped by management discretion.”

The broader significance is the template itself.

STRC blends equity features with bond-like behavior and a built-in adjustment lever. It offers a new path for companies to raise capital tied to volatile assets without locking in fixed obligations.

For now, these instruments have done their job: attract capital and support further bitcoin accumulation. The open question is how it behaves under stress and who absorbs the cost when the trade no longer looks stable.

The interpretation of that scenario isn’t great, but not for MSTR, “it’s the investors who may feel somewhat aggrieved when the music stops,” BitMEX concluded.

Read more: Strategy’s credit risk falls as preferred equity value surpasses convertible debt