$STRC’s 11.5% Dividend is INSANE but RISKY

STRC's 11.5% dividend is insane but also risky. Let's walk through it. Okay, first of all, what is it? STRC called Stretch uh is issued by a company called Micro Strategy, the largest Bitcoin holder in the world ahead of even massive countries like the United States and China combined. Micro Strategy has more Bitcoin than uh even nation states. So, it's issued by a company called Strategy, which used to be known as Micro Strategy. They dropped the micro. Now it just is known as strategy. And they have been experimenting with different financial instruments to try to get people to give them US dollars that they can immediately convert to Bitcoin. And they've experimented with a whole bunch of different things, most of which start with an S. STK, STRF, STRC, um, uh, or sorry, STRD, I guess, was one of them. Anyway, the one that actually really took off was STRC. Stretch. STRC. So, what is it? Well, Stretch, here's the deal. They make the the the this pact with you, which is, hey, you give us $100 and for every $100 you give us, we will give you $11.50 of dividends on an annual basis, and you get one 12th of that every year. So, if it were 12% just to make the math easy, for every, you know, $100 you get them, you give them, you get $1 per month, which again is $12 per year, which is 12% and technically it's 11.5, but you know, the math is easier to do on a 12%. Okay, so that's the deal. You give them $100, they give you $1.50 per year. Now, on the surface, that sounds ingenious. And for Michael Sailor and his company strategy, it is ingenious. It is one of the smartest, most radical financial innovations of the 21st century. Certainly nothing compared to Bitcoin itself. But in the world of traditional finance, it is probably one of the biggest innovations in the world of traditional finance. Uh nothing nothing nothing else pays you 11.5% uh dividend uh or interest or whatever that is not basically a Ponzi scheme or something like that. Okay. So uh so that's how it works and the way the economics work is Michael Sailor and his company strategy they want the upside of Bitcoin in exchange for you giving them your US dollars to get that upside uh they they are willing to give you the first 11.5%. The deal is in exchange for attempting, and that's a very important word, attempting to take away the Bitcoin volatility, the volatility of Bitcoin, they are giving you the first 11.5% of return. In exchange, they get to keep all of the upside of Bitcoin above 11.5%. Additionally, and this is the most important part of STRC, they are not obligated to give you that dividend. They have announced that they plan to give that dividend. They have been paying that dividend regularly, so they've never missed a dividend. They've never said they're not going to do it, but they have no legal obligation to pay that dividend. They reserve the right to change that dividend at any time for any reason. And they have said if the demand for STRC is too high, they will start ratcheting back that dividend uh to make it lower so that demand comes back down. Uh so the way it works is the the share STRC is supposed to trade at $100 per share. If it trades below that, they are supposed to increase the dividend rate to increase demand to push the price back up to $100 per share. And if the price trades uh above $100 per share, generally it will not do that because that $100 per share, the company's strategy issues additional shares of STRC into the marketplace to push the price back down to $100. So, they're trying to create a Treasury reserve asset where you can trust that it will cost $100 today, tomorrow, a year from now. That the asset will always be $100 per share. And the only thing that changes is a slight adjustment in the dividend rate, which could be 11.5, it could be 10.5, it could be 12.5. It'll be in the range of whatever is required in order to keep that stock trading at $100 per share. Now, they have every incentive to keep it trading at $100 per share. As long as the stock is trading at $100 per share, they can issue, well, as long as it's trading even a microscopic bit above $100 per share, they can issue additional shares of MST of uh uh STRC, the stretch uh preferred stock. So, as long as it's trading even a microscopic bit, even a penny or a fraction of a penny above $100, they can issue additional shares of STRC to push the price back down, allowing them to stockpile more Bitcoin. And again, the deal is they use your money, they stockpile Bitcoin, they give you the first 11.5% of the gain on the Bitcoin. They keep the remainder, which accuses to their common stock, MSTR, which is their common shares. they keep that remainder and that is the deal they make. So again on on the surface it sounds great and it should work. Just to be clear it should work because Bitcoin's upside is far in excess of 11.5%. Some people in the marketplace want all of the upside and some people want a stable 11.5% interest. So it's sort of a way of trading. It's basically saying hey everybody that wants 11.5% interest get on this side of the line. Everybody that's willing to absorb their vol their volatility in exchange for the upside above 11.5% get on this other side of the line. And the magic world would, you know, divide into two groups of people. One that can stomach the volatility, which is what I do all day long, and another group of people that can't stomach the volatility, and those are the people that get 11.5%. Now, both groups are better off. The people who get all the upside above 11.5% are thrilled. Um, and the people who get 11.5% are thrilled because their alternative is making 0, you know, 0.05% interest in a bank account, which is what my kids get on their bank accounts that have basically nothing in them because it's all Bitcoin. Uh, is 0.0520th of 1%. Half of onetenth of 1% is what my kids uh, youth savings accounts make. Okay? So, it should work out fine. It should be good. Everyone should be happy. The problem again is the Achilles heel of all of that is that there is no legal obligation for strategy to actually pay the dividend. And in order to pay the dividend, one of two things has to happen. One, the price of Bitcoin has to keep going up so that they can sell sell more shares of MSTR, which is their common stock, which is how they fund the dividend. Or they have to sell some of their Bitcoin. But they've said they are not going to sell their Bitcoin, which means at some point Bitcoin does have to go up. Now, they've been very clear that because they are sitting on more than 50 billion dollars of Bitcoin, the price of Bitcoin only has to go up by 2% per year. So, basically $50 billion of Bitcoin, 2% per year means they get $1 billion of upside uh for every 2%. They use that billion dollars to pay interest on the STRC, which is let's call it a billion dollars. I'm just using very round numbers here. And then everything's fine. Again, the problem is what happens in the future if they decide not to pay the dividend. Now, the problem will not be Bitcoin. Bitcoin will easily go up more than 2% a year. In fact, it will easily go up more than 20% a year. I mean, it's going to outperform everything else. So, that's not the problem. The problem is human greed. The problem is at some point the team at strategy and Michael Sailor's a genius. He's awesome. He's amazing. He's a libertarian. He's read basically every book on the planet. The guy is like just a certifiable IQ genius. So, is he the right guy to pull this off? Yes. Is his team the right people to pull this off? Yes. But do they have to pull this off? No, they do not. They can tomorrow wake up and decide, you know what? All those people who gave us money for STRC, it was nice having that money, but we just want to pay 0% dividend and let the stock drop to close to zero and walk away. They can do that. They have every legal right to do that. Now, they say they're not going to, but there's nothing legally that gives you a recourse if they decide to just walk away with money that is in STRC. So, for people like me, am I buying STRC? No, of course not. I am on the other side of the equation. I am one of the people who wants the volatility of Bitcoin because with the volatility comes the upside. Now, I'm not going to go buy MSTR stock, the common stock of Micro Strategy, because again, uh, Bitcoin is exactly what I want. There's no shenanigans with Bitcoin. I'm not trusting anybody with Bitcoin. I'm not counting on the execution of Michael Sailor or any of his team. I just want Bitcoin the real thing. But some people want Bitcoin on steroids. And Michael Sailor is promising that MSTR is Bitcoin on steroids. That's the common stock. It's Bitcoin on steroids because not only are you getting the upside of the $50 billion of Bitcoin, you're also getting the upside above 11.5% of all the people who are buying STRC. So his his view is look, Bitcoin's going to give you a great return, but if you want a return even higher than that by MSTR. Now again, I am not doing that because I don't trust that that's going to work out great for me. It might, it even probably will, but it's just not worth it. Bitcoin is a fantastic asset. I'm not going to play games. I'm not going to risk my fortune on MSTR. And conversely, on the other end of the spectrum, I have no interest in an 11.5% dividend because it means I'm giving up all of the upside of Bitcoin. It means I'm using US dollars to get that yield. Now, if I were at a different phase of life, if I was retired, if I was, you know, I can see scenarios where that would be a valuable asset in a diversified portfolio. But I do not have a diversified portfolio. I have a portfolio of 100% Bitcoin.