I have always been a proponent of STRF for STRF holders. I never believed it was in the best interest of Strategy’s common shareholder to issue such an instrument. That said, it has been, arguably, the top performing preferred in their stack on a risk adjusted basis.
Over the next five years, the one thing we can count on is continued STRC issuance. Every dollar of it sits junior to STRF, so STRF only becomes more and more overcollateralized as the program runs.
The volatility gap
STRF weathered the cash reserve drawdown in a way that STRC did not. Two structural facts sit behind that. STRF has a much smaller float, and its at-the-market facility has been dormant for over a year, so there is no steady supply of new paper meeting the bid.
Investor protections
Of all digital credit instruments, STRF has the strongest built in protections for investors. SATA shares several STRF-style protections, but it represents a claim on Strive, not on Strategy’s colossal balance sheet.
| STRF | STRC | SATA | |
|---|---|---|---|
| Claim on | Strategy | Strategy | Strive |
| Ordinary issuer call | None | Yes | Yes |
| Effect on upside | Uncapped | Capped at the call | Capped at the call |
| Credit upgrades reach holders | In full | Limited by the call | Limited by the call |
Note the similarities between STRF and SATA. The largest differentiator, for me, is the ordinary issuer call. The fact that Strategy cannot call STRF makes it truly an open market instrument. Any credit upgrade in Strategy flows through to STRF holders. The same cannot be said for STRC or SATA, which carry explicit call provisions and therefore price caps.
Seniority and rating over rate
STRF has outperformed STRC on almost all metrics, volatility included. That leads me to believe capital seniority and Bitcoin rating matter far more for these instruments than the effective interest rate.
These preferred equities are not bonds. The principal is never repaid to holders, so the perceived ability to pay the dividend into the future matters far more than a marginal increase in the dividend rate. That is one explanation for STRF’s muted volatility. Its seniority and its stronger investor protections induce greater confidence in dividend payouts into the future.
Pricing a perpetual preferred is a forward looking assessment of expected dividends, their sustainability, and potential recovery, discounted for interest rate, credit, and liquidity risk. A near-term dividend increase matters primarily through what it changes about that longer-term outlook.
For STRC, a higher variable dividend can improve near-term income and support the share price, but it does not, by itself, improve the issuer’s creditworthiness or the holder’s priority in the capital structure. Its lasting valuation impact depends on how long investors expect the higher rate to persist and whether the issuer can sustain it. If investors demand greater compensation for credit or liquidity risk, that higher required return can offset the benefit of a dividend increase.
All of these factors are expressed in the different volatility profiles of STRC and STRF.
This note reflects the views of the author and is for informational purposes only. It is not investment advice, and it is not an offer to sell or a solicitation of an offer to buy any security. UTXO Management and its affiliates may hold positions in the securities referenced herein.