Zerohedge: Bitcoin Holdings: Is a "Safe" Investment Actually a Trap?

Summary

Bitcoin holders are being marketed three securities, STRC, and SATA, as a safer way to gain bitcoin exposure, promising tax advantages, 11.5% income, bitcoin backing, and money-market-like risk. However, the article claims these pitches are fundamentally inaccurate and the securities are designed to fail. STRC, for example, is an unsecured, perpetual preferred equity with no maturity date and no claim on actual bitcoin. Its dividend is discretionary, meaning the board can cut it without notice. S&P rates the issuer as B-, four notches into junk territory. The marketing descriptions of being "backed by bitcoin" or "money-market-like" are contradicted by the security's indenture. The article states that over $8.8 billion of the $10.7 billion notional outstanding for STRC belongs to retail investors. The funding mechanism is described as a reflexive loop where new shares are issued to pay existing holders, a system that breaks when STRC trades below par. The dividend obligations exceed the software business's revenue by a ratio of 3.5 to 1. Simulations suggest a significant probability of default, dividend deferral, or forced bitcoin sales for STRC holders, especially during bitcoin drawdowns. The author argues that bitcoin's core purpose is to eliminate counterparty and custody risk, which these securities reintroduce.