Arca’s Jeff Dorman believes there is only one solution to Strategy’s STRC crisis

With Strategy’s STRC preferred stock trading 17% below its $100 par value, Arca Chief Investment Officer Jeff Dorman has argued that selling billions of dollars worth of Bitcoin may be the best path to easing pressure on the company’s capital structure.

According to Dorman’s June 18 X post, the recent decline in STRC has left Strategies facing increasingly difficult choices as investors question the sustainability of preferred stock obligations. The preferred securities fell to an all-time low of $82.53 on June 18, but recovered to close at $88.59, still well below par.

Describing the situation as the latest stage in “MSTR’s pickle,” Dorman said management must decide whether to take direct action to restore confidence in STRC or continue operating under a structure that leaves multiple parts of the company exposed to uncertainty.

Selling Bitcoin could buy you time for strategy

In Dorman’s view, the most effective solution would be for Strategy to sell $3 billion to $4 billion worth of Bitcoin. Assuming a 25% probability of that outcome, he said such a move would provide additional flexibility, support STRC holders, and address concerns surrounding preferred stock without materially changing the company’s long-term Bitcoin strategy.

Dorman acknowledged that a huge Bitcoin sale could weigh on assets in the short term, but argued that it would buy the company significant time and ease pressure on its funding structure.

But his most likely scenario suggests otherwise. Dorman assigned a 70% probability that the strategy would continue with its current approach of selling a small amount of MSTR stock, which he described as a non-accretive level.

He said that while Bitcoin holdings will remain largely intact following this result, STRC investors will maintain some hope for a recovery, while public shareholders could face further declines.

The comments come as scrutiny continues to intensify over Strategy’s funding model. As reported by crypto.news, Peter Schiff recently accused Strategy co-founder Michael Saylor of misleading investors who bought STRC, which was touted as a yield-producing investment.

Schiff argued that retirees and income-oriented investors could have grounds for legal action if the risks associated with securities are not properly disclosed. He also warned that the stock price decline could make future financings more expensive if investors start demanding higher yields to buy additional STRC shares.

Dividend obligations remain at the center of concern

Dorman assigned a 5% probability to what he called “nuclear options,” which include selling stocks and disposing of Bitcoin, as well as eliminating payments associated with preferred securities.

Dorman said the move would only allow preferred shareholders to collect 30 to 40 cents on the dollar, effectively locking Strategy out of the capital markets. At the same time, he said the company will eliminate approximately $1.7 billion in annual cash debt.

Other liquidity concerns have also emerged in recent weeks. Prior to this, market maker QCP estimated that the strategy’s available liquidity could support around seven-and-a-half months of preferred dividend payments.

QCP added that the company may eventually need alternative funding sources if existing funding channels become unattractive, and Bitcoin sales could be one of the available options.

Along with these concerns, Dorman disputed Strategy’s valuation. According to his calculations, the company holds about $35.2 billion in unsecured Bitcoin collateral against a stock market capitalization of about $40.4 billion, and MSTR trades at about 1.15 times its net asset value.

Given these numbers, Dorman argued that MSTR should trade below its net asset value, warning that the stock could continue to fall unless Bitcoin shows a strong recovery. Still, he said upside will depend on the strategy’s ability to avoid further dilution through dividends, asset sales and future fundraising activities.