Bitcoin-linked preferreds fall below par, trigger margin calls

This week the perpetual preferred shares STRC and SATA traded below their $100 target. STRC fell as low as $82.50 and SATA dropped into the low $90s before both recovered some ground. The moves prompted margin calls and forced sales in a market estimated at about $10 billion.

STRC is issued by Strategy and SATA by Strive. Both securities are structured as perpetual preferred shares that pay double-digit dividends and are backed by companies holding large Bitcoin treasuries. Investors bought the shares to obtain dividend income from Bitcoin-heavy balance sheets rather than from the cryptocurrency itself.

Some holders used margin loans to increase exposure. That approach depends on the shares remaining close to par. When STRC declined, accounts using leverage lost their price cushion and faced maintenance requirements from brokers.

Brokers enforcing maintenance rules sold positions, producing forced liquidations and accelerating the price fall. Trading data showed heavy volume in the middle of the day during the drop; traders flagged that intraday surge as consistent with broker-driven selling rather than routine volume near market open or close.

SATA moved lower as well. Investors meeting margin calls often sell available holdings rather than the specific security that triggered the call, which can pull related products lower even when no issuer default or missed dividend has occurred.

Matt Cole, Strive’s chief executive, characterized the episode as leverage driven and said the company’s dividend reserves remained intact. He commented, “When markets move against leveraged holders, forced selling can create a cascade. Prices fall, margin calls increase, more selling occurs, and the cycle feeds on itself. The selling becomes disconnected from fundamentals and becomes driven by balance sheet constraints,” and added that Strive remained positioned to meet its obligations.

Jesse Myers, head of Bitcoin strategy at The Smarter Web Company, noted Strategy’s balance sheet was unchanged by the price movement and that the company could continue paying dividends under current conditions. He also pointed out that lower trading prices raise effective yields for new buyers because the stated dividend is fixed while the purchase price falls.

Both STRC and SATA recovered some of their losses after the deepest selling. Brokers are reviewing margin rules and some issuers are considering stronger structural protections, including larger cash reserves, clearer buyback plans, higher call premiums and more flexible dividend terms. Those options would increase costs for issuers and could reduce the securities’ appeal as a high-yield product.