Why STRC Is Not a Bank Account, No Matter What Saylor Says

Transcript

So now let's dive into the details on STRC because it sort of feels like that's kind of at the center of all of this. So um I think you've like explained a little bit, you know, about how it's structured, um how it's changed the game for strategy, but I feel like you, you know, have a take on how you feel it's been marketed and then how you feel that investors think of it versus the reality. So just explain all of that. Yeah, sure. Okay. So, the first thing is the name digital credit, right? So, I if you didn't tell me what these things were were and I heard the word credit, I would assume they're debt,

right? So, I had an argument with uh Matt Cole. Um well, he didn't respond. Uh but he made >> the Strive Seimilar product. >> Yeah, that's right. He's he's the CEO of Strive right? So anyway, um a podcaster had and it had been doing the rounds. It was like just a screenshot of the cover of a Moody's uh report and it was about the the heading of the report was hybrid equity credit, right? And they were holding this up because in there they were classifying preference shares, right?

They were it's a methodology for classifying them as either equity or credits or a hybrid instrument, right? And so what they had done is underlined the word credits on this document and then held it out as proof that institutional investors uh categorize or define preference shares as credit. Right? So this was their justification when called out by Parker Lewis who's a very well-known uh uh name in the Bitcoin space had said these things are not credit right and um so anyway um I because it was only the front cover I went and found that

document it's 22 pages long and I read the whole thing okay so in there what they do is it's a methodology for deciding like I said is this equity is a credit or is it somewhere in between and the main thing is do you get your money back from the company so is there a maturity date on the debt right on these preference shares they're perpetual okay so that immediately classifies them as equity but they could still be a hybrid right but the issue uh is that this so these all of these instruments ments are unrated. They don't have a credit

rating. The only entity that has a credit rating including strive strategy and everything is strategy and it's got a credit rating six notches below investment grade. Okay. So, it is junk uh rated, right? And um they say in that document if we're making this determination if it's not an investment grade issuer it automatically gets uh categorized as 100% equity. Okay. So the document they were holding out as kind of evidence or uh you know whatever to say that these

are credit instruments right actually classifies their instruments as 100% equity and that's quite right because the only way you can get your money back is on the secondary market. So you're relying on the next buyer to pay you the full $100, right? So, if somebody had, you know, we went to close to $90 over the last few days. So, if somebody wants their money back, they're going to get $90. They can't go to the company and say, "Give me my $100 back." It's not uh debate. The other thing is with a bond, if you miss a payment, right, the the the debt holders can accelerate and and basically take measures and if you if

you don't uh correct them, they can push you into bankruptcy. Here the dividend is entirely discretionary. In the prospectus it tells you that the and they decide this every month, right? um they can suspend the dividend for any reason whatsoever. They don't even have to have a reason, right? They could just be in a bad mood and they don't have to pay the dividend, right? So that is not debt, right? So by calling it digital credit, I mean it's not against the law, but it is misleading, right? But then also what's interesting is if you actually and I'm going to get the actual uh quotes here. Let me uh see where I've

got them. Where? Oh, here we go. Okay. So, Michael Sailor in a Bloomberg interview on the 29th of September 2025, and I quote, "Everybody in the world would love to have a high yield bank account that yielded 10% or more. They'd love to have a money market that gave them double or triple their normal money market. Okay, so he's saying these things are equivalent. Then in February 2026 when designing Stretch, our goal was to create a high yield bank account style product. Okay. Uh again in February 2026, our goal is to provide

you with a bank account that pays 10%. Instead of your bank that pays you four or three or two or zero, that's what stretches, right? Um he Okay, this is a crazy one. In an AI generated spinal tap ad also in February 2026, he said, "We created a bank account that pays 17 to 20% by combining digital capital with a digital credit instrument with a digital treasury company that issues securities to pay the dividend." Okay? And he's adding on the tax-free nature to get to the 17 or 20%. Right? But what people

don't realize is this. The reason why it's taxfree is because it's classified by the IRS as return of capital. So your basis is dropping every time you get a different until it hits zero. So that when you sell the security, all of that is capital gains, right? So it's it's tax deferred, not tax-free, right? Um I can give you examples of strive. So CEO uh M Cole on March 11th, 2026 um in a press release said instead of holding idle cash earning low yields in money market funds, allocate a portion of those reserves to instruments like SDRC

that provide strong yield dynamics while maintaining uh stable price behavior. And then he said SDRC and SATA are extremely creditworthy instruments. That was on the Bitcoin Treasury's account. Then Strive CRO Jeff Walton said SDRC is a high quality credit instrument. Clear advantages over traditional fixed income. Right. Um and so these things are actually unrated.

Okay. Uh uh they issued by an unrated company in the case of SATA or an a company with a credit rating uh six notches below investment grade. They're junior. They're perpetual preferreds. They have no maturity. You have no right to redeem. You cannot demand your $100 back. You can only sell on the market. Both have traded below 100 multiple times. The dividends are discretionary. Holders have no claim on the Bitcoin. It is not ringfinched or pledged to them.

The coverage and overcolateralized figures are marketing ratios, not leans on the Bitcoin. Okay. Uh and both are issued by companies with negative operating income. So if you compare that to a money market fund, okay, that will have only investment grade paper, much of it treasuries, okay, and the government can print dollars to pay you back, right? Um it'll have like double A or AAA rated uh it's the systemically large banks that are issuing that paper, right? Um and it's diversified across hundred hundreds of instruments, right?

So if in the unlikely event something was to happen to one of them, it would be like 0.00002% of the fund, right? Um and a bank account is FDIC insured up to a limit. Um, and so therefore, and also, yes, FDIC can run out of money, but again, we know they would bail out the FDIC because they're not going to let contagion run through the banking system. Um, these are daily f fluctuating unsecured junior equity on the most volatile major asset in the world. And that is how they are talking

about it, right? And then you got plumbers electricians nurses truck drivers thinking this is awesome. Finally, what I've been looking for an 11 and a half% interest rate bank account or money market fund. >> So that is the problem that I have. >> Yeah. I think what's interesting is um you showed how basically the company kind of has all the power even though they've um marketed in this way that gives people confidence that they'll always be paid this dividend. But I think um like you know so so I did see some other tweets like for instance Ryan Watkins of Secrecy Capital tweeted it amazes me how many people actually think

Sailor is at risk of getting liquidated. The point of the preferred is so MSTR can get the benefits of debt without the obligations to pay it back. So it like shows that the structure is beneficial to them. But I think the other piece of it, which is maybe what you're pointing out, is that if they were to exercise that power, then it reduces the confidence in those instruments and creates a little bit of a spiral on its own as well. is that >> well I mean so think about it right so when when everything when we were in a raging bull market after the ETFs got issued and everything right people were paying two and a half times the value of

the Bitcoin or shares right so 150% premium is what they were paying for the shares right now that's kind of illogical why would you pay 150% % above the value of something. Well, it's because you believe the next guy is also going to be willing to do that, right? So, it's essentially a belief that oh then, you know, we're always going to have this premium. So, and if you issue shares above the value of the Bitcoin, you increase the Bitcoin per share. So, as long as everybody who behind you keeps doing that, then you'll make up the premium that you paid, right? But as soon as that belief goes

away, which it has done now, now you're trading at 84% of the value of the Bitcoin. Right? So you can imagine people who bought in say at the peak like in November 2024, they had this kind of blowoff top, right? I mean those chair shares and please if I get this wrong, forgive me, I'm going from memory, but it was sort of 550 or something like that. Okay. the the stock stocks trading at 120 and those people were paying like three and a half times or three times the value of the Bitcoin.

So they lost all the premium, right? And then the Bitcoin price dropped. So they're like off 80%. Right? Um, you know, people always cherrypick from like literally the moment they started the Bitcoin Treasury say and say, "Look, but what about all the people who bought, you know, since there, right? They're all underwater." And confidence has been knocked and these securities require confidence in the whole thing to be sold at a premium. And that's what this whole flywheel is about, right? when that confidence gets lost, the flywheel goes in the other direction, right? Um, now I agree they're very unlikely to get liquidated,

right? I mean, the Bitcoin price would have to trade to about $9,000 a coin, right? So, I mean, that's that's extreme. that would be like the probably the biggest draw down or except maybe in the very early years when it was like you know $100 or $10 a bitcoin or whatever and it was you know a play thing. Um so I don't think that that's the issue. My problem is that if you get into a situation where you have to suspend the dividend and you're selling a whole lot of Bitcoin, first of all you're going to drive the Bitcoin price lower. But not only that, so you could get into the mid20s, you know, in an

extreme situation, but the other thing is what's going to happen to the price of all the preferred, right? And are retail holders going to understand what's going on when they're not getting the income that they were expecting to get and the price has fallen from 100? You know, if it's analogous to the GFC, which I don't say it is, but it kind of makes it's some kind of guide and benchmark. If the thing that you bought at $100 and you thought it was a bank account or a money market fund which trades apar right and it falls to 20 or $30, how are all of the people who have been kind of sold on this stuff by the types of statements I'm mentioning and

the hyperbolic podcast is you know saying you know it's just basically the most excellent thing you know why would you have a bank account why would you have a money market fund And then all of these people who don't really understand the risk go and put their money in the situation where they're getting no income and the thing they've lost 60 or 70% on the par value. What are they going to do? Right? So those are the people I care about. I'm not talking about uh strategy going actually bankrupt. Right?

um uh you know but also if if the type of scenario that I'm pointing out strategy is never going to be the same because remember they need confidence to sell these shares at a premium. So then after that there's going to be a lot less confidence in that. I mean the the crowd will be split for sure but you know if it's split 50/50 well then they got 50% less demand for their securities right and every time they issue more preferred they increase the the the the cash obligation they've got >> you just caught a piece of Unchained.

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