Parker@TheOtherParker_
Jfc, why is $STRC crashing still.
Especially with $BTC up, cash reserves at Strategy growing $100M/wk, bi-monthly dividends now in place, and $SATA trading really well.
I think someone (or a group) is shorting. We'll call them "Jane Soros" (JS). We won't know for sure until the short interest report comes out around the end of the month, and even then, we may not fully know if (a) the short is closed intra-period and (b) the short used derivatives.
$STRC is an especially attractive stock to short, because it has a soft-peg of $100, but that only exists in the minds of the roughly $8B in retail capital holding it. There's no formal mechanism to push the price to $100. Increased dividends help, but it's not a forcing function, the market still needs to bid.
Shorts make all of their money when they convince the other side of the market to capitulate. When shorts push the price down, every order that they fill against is a share that they will need to buyback later, likely at a higher price. So, the only way they make money is if they convince the other side to capitulate at the bottom, giving the short the exit liquidity they need to cover (buyback the shares).
This is why shorts have a field day in crypto in general, because it's heavily retail dominated and easy to move emotions around (or stop hunt or liquidate).
The situation is especially bad with STRC though, because there's the expectation that it'll trade mostly at $100, so even a 5% deviation from that appears catastrophic to the narrative and can cause people to capitulate.
Additionally, there are multiple crypto projects, including @apyx_fi , that are built on top, which could create a cascade of selling if people start to bail there.
STRC is also the perfect instrument to short because (a) the cost to short is effectively zero if timed correctly and (b) the Strategy ATM provides a cap on losses.
So, let's take a look at the JS strategy here:
1. Start to build the short position immediately after ex-dividend on May 15 - an especially good ex-dividend because it occurred on a Friday with lower liquidity, so easier to start to push the price. This would be a slow build though, not a huge short immediately.
2. Continue building the short position over the following weeks - the outright cost to borrow STRC is about 60bps (0.6%).
3. BTC rolling over creates the catalyst/fear condition to really push this, accelerate the selling.
4. Continue selling until June 5, and then start to cover into the close (we saw the June 5 close bounce). Cover more on June 8 as ex-dividend approaches.
5. After the bi-monthly vote passes and ex-dividend approaching doesn't seem to be completely resolving the price back to $100, reaccelerate the selling.
6. Make a risk/return calculation that continuing to short through ex-dividend and paying the ~1% is worth the potential profits of pushing the price down to $90 and covering there as more retail capitulates.
7. Cover before the end of the month when Strategy likely announces a dividend increase and employs additional tools to help push the price back to $100.
This risk is always capped at average_short_price - $100, because everyone knows that $100 is the ceiling. With normal shorts, losses could be infinite, so shorting is a very risky game, but that is not the case here. So, if average short price is say $97, and JS can cover at $90, then JS could make $7 on $3 of risk. >100% risk/reward on a 2-4 wk trade. Not too shabby.
$SATA is much more insulated from this because (a) the daily dividends make it MUCH more expensive to short, because JS would have to pay the dividends as part of the cost to short every day instead of closing out the position intra-dividend-period. SATA is also much more expensive to short outright, currently 460 bps (4.6%) instead of the 60 bps for STRC. So, the daily short cost for SATA is 1760 bps (17.6%) annualized while the daily short cost for STRC is 60 bps annualized.
So, how does Strategy fix this situation? First, move to daily dividends - this meaningfully increases the cost to short. Second, raise the dividend to increase the cost to short. Third, continue rebuilding the cash buffer to shore up confidence and bring retail demand back. Fourth, consider announcing a change in ATM strategy to allow the price to go above $100 - this meaningfully changes the risk calculus for the shorts.
The ultimate goal is to create a product that is maximally difficult to manipulate by the shorts. I have full faith that @saylor and team can resolve this situation in time. I am also certain they are keenly aware of these dynamics.
So, if you're holding STRC, just have a little patience. Collect the dividends, scoop a little more if you want, and go touch grass.
Panic selling is what the shorts want you to do, because that's their only way out.
