How Do You Know if You're in a Cult?

Hope is not a Strategy with STRC

A quick internet search will give you the top warning signs that you are in a cult. Here are three of the top signs:

1. Absolute authoritarianism without accountability

2. Zero tolerance for criticisms or questions

3. A belief that the leader is right at all times

I find many cultish threads when I look at the preferred stock offered by Michael Saylor’s Strategy, Inc (formerly Microstrategy). STRC, is affectionately referred to as “Stretch”. Before I can explain STRC, I must explain Saylor’s vision for this company, Strategy, Inc.

Founded in 1989, Microstrategy was a business intelligence software company. But things took a turn in August of 2020, when MicroStrategy purchased $250 million Bitcoin as a treasury reserve asset on its balance sheet. The company would continue to make additional large purchases of Bitcoin, and it’s balance sheet and valuation became completely based on it’s cryptocurrency holdings.

_{*Source: Strategy Inc financial filings to the SEC. Generated by Claude AI.}

Saylor believes that the future price of Bitcoin will be so high, that he issues new common shares of Microstrategy stock purely for the purpose of buying more Bitcoin. At the end of May 2026, the company owned 843,705 BTC valued at over $65 billion. The company’s legacy revenue from the software business is relatively small at ~$475 million per year.

If issuing new shares of stock for the sole purpose of buying Bitcoin sounds odd, wait until you hear what happened next.

The newly renamed Strategy Inc then offered preferred stock which pays juicy dividends. They were insanely popular. Investors purchased more than $15 billion in preferred stock from Strategy though the end of May. The annual dividend burden for the company is now ~$1.7 billion per year. With annual revenue less than $500 million, you might wonder, where is the money coming from to pay such dividends?

The dividends are funded by issuing MORE preferred stock, which in turn increases the dividend burden. That’s right, the person in line behind you is funding your dividend. The only reason this is not a Ponzi scheme is that the fraud is fully disclosed.

To be more precise, the dividend can be funded by the sale of common stock as well, or by selling some of the Bitcoin, something Michael Saylor swore for years he would never do …. until last week. Strategy sold 32 BTC for a total of $2.5 million to help fund the STRC dividend. Although this is a small fraction of the company’s total Bitcoin holdings, the sale represents a symbolic shift from the ‘never sell’ promise from Saylor since 2022.

The cult leader can never be wrong. He cannot be questioned.

STRC preferred stock has a mechanism where the company increases the dividend yield to entice new buyers and peg the price at $100 per share. STRC launched in July of 2025 with a yield of 9.00% per year. The yield has increased seven times to 11.5% in April. It is an upward spiral. Issue more shares, then increase the dividend yield to entice investors to buy more shares and peg the price to $100.

Cult followers are suspicious of anyone who questions the strategy.

STRC shareholders are enamored with another factor; the dividends are classified as a return of capital; and, therefore, not counted towards income tax. This is a lesson investors learned the hard way with Master Limited Partnerships or MLPs. The return of capital lowers the cost basis of the shares, building a larger tax burden upon eventual sale of the shares.

In the simplest terms possible, STRC is a pyramid scheme. The owners of STRC shares are paid a juicy 11.5% yield that comes from the investors who bought new shares this month. To the extent that the money from the new shares exceeds the dividends, the company buys more Bitcoin. The entire pyramid is based on the premise that “Numbers Go Up”.

Call me old fashioned, or simply old, but this is a nothing more than a financial scheme to me. There’s no THERE there.

If you think the price of Bitcoin is going up, why not buy Bitcoin instead?

STRC shares will rarely trade higher than $100 because the dividend adjustment mechanism is designed to keep the share price at that level. The upside is limited to the dividend yield. But the downside risk that this whole house of cards collapses is very real, and becoming more likely by the minute.

What happens when the music stops? If investors stop buying new shares of MSTR and STRC, the only source for paying dividends is to sell Bitcoin. This upward spiral has the ability to become a death spiral very quickly. In fact, there are signs that the music may have already stopped.

Shares of STRC traded as low as $91 this week. The price of Bitcoin briefly dropped below $60,000. Strategy USD cash reserve of $2.25 billion was reduced to $871 million last month, when the company used cash to retire convertible debt. Every tick lower for Bitcoin reduces Strategy’s valuation, while every tick higher for STRC’s yield increases their dividend burden.

I guess you have to be a member of the cult to understand.