Author: Merkle3s Capital Source: X, @Merkle3sCapital

Saylor's First Respondent Statement: Funding Flywheel Under Pressure

On May 5, 2026, Michael Saylor said during Strategy's Q1 earnings call, "We may sell some Bitcoin to pay dividends, aimed at stabilizing the market and sending a message that we have taken action." MSTR fell more than 4% in after-hours trading, and Bitcoin briefly dipped below $81,000.

This statement doesn't sound like something a believer who has adhered to a "never sell" policy for four years would say. It reveals not just a minor strategic adjustment, but rather that the operators' real options are narrowing as the entire funding machine begins to feel the pressure.

Strategy's STRC is not Terra UST, but it is indeed a financing machine that relies on the perpetual motion machine of the capital market to operate. When Bitcoin falls, mNAV drops below 1x, and new buyers dry up, this machine will not collapse within 72 hours, but it will slowly bleed. This article will dissect the transmission structure of this machine, its failure modes, and why Bitmine (BMNR) will not follow the same path. This machine is called STRC, and Saylor uses it to buy Bitcoin every day. On July 29, 2025, Strategy listed on Nasdaq with a preferred stock called STRC, with an offering price of USD 90, raising $2.521 billion—setting a record for the largest IPO in the United States that year. By May 2026, the outstanding amount of STRC had increased to $8.5 billion, which Saylor called "the world's largest and most liquid preferred stock" at the Bitcoin 2026 conference. The essence of STRC is not preferred stock, but rather the driving force of a financing flywheel—its existence is to continuously extract dollars from the capital market, not to provide investors with stable returns. Understanding STRC lies in its design logic, not its face value. Mechanical Structure: STRC has a face value of $100, an annualized dividend yield of 11.5% (currently), and pays monthly cash dividends. The dividends are accrued—if Strategy is unable to pay in a certain month, the debt accumulates and compounded at the current interest rate, and must be fully repaid before paying dividends on common stock or lower-tier preferred stock. The core mechanism is a monthly variable interest rate reset. Each month, the dividend yield is adjusted based on the average trading price of the STRC on the secondary market: if the price is below USD 100, the interest rate increases (up to 50 basis points per month); if the price is above $100, the interest rate decreases. This mechanism is essentially a dynamic pricer—Strategy can offer a higher interest rate at any time if you're willing to buy. From August 2025 to March 2026, the STRC interest rate was raised seven times consecutively from 9% to 11.5%, a cumulative increase of 250 basis points, averaging 31 basis points per month. On November 21, 2025, the STRC fell to a historic low of $90.52; in February 2026, it fell again to $93.10—both triggering a 50 basis point "emergency rate hike." While Strategy is buying back trust with higher interest rates, its financing costs are rising simultaneously. Strategy currently has four preferred shares: STRF (Strife) with a 10% fixed interest rate, the highest priority, and closest to traditional bonds; STRC (Stretch) with an 11.5% variable interest rate, the second priority, and the focus of this article; STRK (Strike) with an 8% fixed interest rate, convertible into MSTR common stock, essentially a call option packaged to Bitcoin's price increase; and STRD (Stride) with a 10% fixed interest rate, but the dividends are non-cumulative—if Strategy skips a payment, that money disappears forever, making it the riskiest of the four. STRC's funding comes from only one source: continuous STRC share issuance. Strategy's ATM issuance plan has registered a $21 billion quota. As long as STRC trades close to its $100 par value, Strategy can continuously sell new shares to the market to obtain cash, which is then used to buy Bitcoin. The complete logic of the digital credit flywheel is: STRC new share issuance → obtaining US dollar cash → purchasing Bitcoin → Bitcoin increases boosting MSTR net assets → mNAV maintained → STRC continues to be accepted by the market → continuing to issue new STRC → cycle. As of Q1 2026, STRC has cumulatively funded the purchase of approximately 77,000 Bitcoins.

The Real Script of the Death Spiral

On May 5, 2026, Strategy released its Q1 financial report: revenue of $124.3 million (year-on-year +11.9%), but a net loss of $12.54 billion—mainly due to the book impairment caused by Bitcoin's drop from approximately $87,000 to $68,000.

This is not a Terra-Luna-style 72-hour collapse, but a controlled, slow bleeding measured in months—but "controlled" depends on Bitcoin not trading sideways at low levels for more than a year.

**Analysis of the Death Spiral in Stages:** **Stage 1: Premium Disappears.** Bitcoin continues to fall, and MSTR's stock price declines accordingly. mNAV compresses from a peak of 3.0x to approximately 1.0x. On May 7, 2026, one calculation showed mNAV had reached 0.99x—the market's first unwillingness to pay a premium for Strategy's Bitcoin holdings. **Stage 2: Dual Channel Closure.** mNAV falls below 1.0x, new MSTR common stock issuance dilutes the Bitcoin held per share, and ATM issuance ceases. STRC falls below its $100 par value, financing costs rise until no one is willing to buy, and STRC issuance also stops. Both financing channels close simultaneously. **Stage 3: Three Exit Strategies.** Without new capital inflows, Strategy has only three options: utilize its $2.25 billion cash reserves (covering approximately 18 months of dividends), issue dilutive stock, or sell Bitcoin. Whichever option is chosen will send a negative signal to the market, further suppressing MSTR and STRC share prices—forming a spiral. The key difference from Terra-Luna: Strategy has 818,334 Bitcoins, $2.25 billion in cash, and an 18-month dividend runway; it won't die next quarter. However, if Bitcoin trades sideways in the $68,000 range for a year, the flywheel will stop spinning. The analogy to the GBTC discount is more direct: GBTC reached a discount of approximately 50% of its face value in December 2022, and MSTR's mNAV is now approaching 1.0x—both are "Bitcoin premium carriers" and have experienced the disappearance of their premiums. The difference is that GBTC is a closed-end fund, while Strategy can actively manage it (buybacks, reduce issuance, adjust financing structure). This initiative acts as both a buffer and a delay—it slows down the bleeding but doesn't change its direction. DeFi has layered leverage on STRC. On top of a base return of 11.5%, DeFi protocols have built a seemingly sophisticated but actually dangerous yield stacking structure. On-chain leverage stacking means that when STRC falls below $100, not only will Strategy be under pressure, but the entire DeFi contagion chain will trigger liquidations simultaneously. Saturn Credit (which raised $800,000 in seed funding in January 2026 from YZi Labs and Sora Ventures, with participation from CZ's YZi Labs): Accepts STRC deposits, mints the USDat stablecoin, and then distributes STRC dividends to holders through the sUSDat savings pool, aiming for an annualized return of approximately 11%. Saturn also offers two tiered products: the advanced tier (srUSDat) with a principal guarantee of approximately 7%, and the basic tier (jrUSDat) with approximately 13%. Apyx Finance: Has raised approximately $136 million in STRC and completed a funding round in February 2026 at a valuation of $300 million. Its core product, apyUSD, centrally distributes STRC dividends to holders who choose to lock them in, resulting in an actual annualized return of 13%-20%. Pendle Finance: Splits sUSDat or apyUSD into principal tokens (PT, fixed income) and yield tokens (YT, leveraged yield exposure). The implied fixed income of PT-apyUSD is approximately 14.84%. Morpho Circular Arbitrage: Collateralize STRC-backed assets with Morpho to borrow USDC (approximately 1.59% annual interest), then invest the USDC in more PT/YT positions, repeating this cycle 3-4 times to amplify the base return from 11.5% to approximately 39% annualized. When STRC falls below $100, every layer on the chain faces synchronized pressure. The collateral for apyUSD and sUSDat shrinks, loans on Morpho face margin calls, and forced liquidations further depress the STRC price. The over 236 million STRC-backed stablecoins will simultaneously face insufficient collateralization—a contagion path in DeFi compounded by the primary risk. Polymarket currently predicts that Strategy has approximately a 50% probability of selling Bitcoin by the end of 2026 and approximately a 27% probability of selling before June 2026. This figure jumped significantly after Saylor's May 5th conference call. This isn't the market pricing in tail risk—it's the market pricing in the benchmark scenario. Why this logic holds true in a bull market? The premise is that Bitcoin is rising. When mNAV is above 1.0x, every $1 of new MSTR stock issued can purchase an equivalent value of Bitcoin, but the market values ​​these Bitcoins at 1.2x, 1.5x, or even 3x—meaning the amount of Bitcoin per share is increasing. This is Accretion: the number of shares is increasing, but the Bitcoin exposure behind each share is also increasing, resulting in a net positive return for existing shareholders. At the peak of MSTR in late 2024, mNAV reached 3.0-3.4x. For every $1 billion of new shares issued by Strategy, the market was willing to pay a $3 billion premium for that $1 billion of Bitcoin—effectively creating 2 billion in value out of thin air. In this environment, the more shares issued, the more profitable it becomes, and the flywheel spins faster and faster. This financial engineering approach generates real returns in bull markets and bears real risks in bear markets—it's not hedging, it's leverage. Current figures: 818,334 Bitcoins, total cost $61.6 billion, average price $75,537 per coin. The current Bitcoin price is approximately $78,374, resulting in a paper profit of approximately $2.8 billion. Strategy claims that if Bitcoin maintains an average annual growth rate of only 2%, it will be enough to cover STRC dividends—while Bitcoin's annualized compound return over the past 15 years is approximately 80%. If this general trend is correct, the flywheel will accelerate again simply by waiting for the next bull market. However, this model has a difficult-to-quantify premise: the market must continuously pay a premium to Strategy's Bitcoin holdings. Once the market treats MSTR as a publicly traded company holding ordinary Bitcoin (mNAV = 1.0), the source of excess returns from financial engineering disappears. This isn't a low-probability event—it already happened once, on May 7, 2026.

Another Path for Ethereum: BMNR's Real Cash Flow

The Strategy model is financial engineering arbitrage, relying on premiums and capital markets. Bitmine (NYSE: BMNR) chose a completely different path: replacing financial engineering with real staking rewards at the protocol layer. Both carry risks, but the sources of those risks are entirely different.

On June 30, 2025, Tom Lee became Chairman of the Bitmine Board of Directors, and on the same day announced a $250 million funding round to launch the Ethereum Treasury Strategy—completely abandoning its previous core business of Bitcoin mining. This transformation took less than 12 months.

As of May 3, 2026, Bitmine held 5,180,131 Ethereum, representing approximately 4.29% of the total global Ethereum supply, with a market capitalization of $12.1 billion (average Ethereum price of $2,336). Of these, 4,362,757 were staked on its self-built MAVAN validator network, yielding a 7-day annualized staking yield of 2.91%, corresponding to an annualized staking income of $297 million. Strategy's "BTC Yield" is an accounting construct and does not generate actual cash flow; Bitmine's staking yield is a real dividend distributed at the protocol layer, independent of Bitcoin price fluctuations, and will continue to be generated as long as the Ethereum staking consensus mechanism exists. Forward Industries represents the Solana path: in September 2025, it transformed with a $1.65 billion PIPE (led by Galaxy, Jump Crypto, and Multicoin Capital), holding 6,979,967 SOL as of January 15, 2026. The annualized staking yield for SOL is 6.73%, significantly higher than Ethereum's 2.91%, achieving staking income of $21.4 million in Q1 of fiscal year 2026. The cost is that SOL's market capitalization and liquidity are far lower than Ethereum's, resulting in greater volatility. The three models are essentially three different risk-return structures: BTC Treasury Company (Strategy Model): Revenue comes from mNAV premium × continuous capital market issuance capacity. No endogenous cash flow. In bull markets, holding Bitcoin far outperforms holding Bitcoin; in bear markets, it far underperforms holding Bitcoin. ETH Treasury (Bitmine model): Revenue comes from Ethereum staking protocol dividends (real cash flow). $297 million in annualized staking income provides a buffer against bear markets. The core risk is equity dilution and incentive misalignment. SOL Treasury (Forward model): 6.73% annualized staking yield, more than twice that of Ethereum. Smaller scale, higher volatility, lower institutional acceptance. Which model is more sustainable in a prolonged bear market? The answer is the ETH staking model, but not because it's safer, but because it has cash flow to offset paper losses. The 2.91% staking yield is still a disadvantage compared to the current 4.5% risk-free rate of US Treasury bonds—only when the Federal Reserve cuts interest rates and the overall crypto asset market recovers will the yield for ETH staking become competitive. The Structural Contradictions Unseen by Retail Investors On the surface, STRC is an 11.5% fixed-income note, and BMNR is a growth stock combining Ethereum and staking yield. But both labels are wrong. Buying STRC is not buying fixed income; it's buying the credit risk of the strategy plus the price risk of Bitcoin, while forgoing most of the upside potential from Bitcoin's rise. Regarding the four structural risks of STRC: Capital Loss Risk: STRC is perpetual preferred stock with no maturity date, and a par value of $100 is not a contractual obligation. In November 2025, it fell to $90.52, a drop of 9.5%. Holders face open-ended downside risk. Dividend Cut Risk: Interest rates are determined by the Strategy board of directors. SEC filings clearly state: "The company has absolute discretion in adjusting interest rates." The $100 target price is not a contractual commitment. Seniority Risk: In the event of bankruptcy, STRC ranks after all secured debt, only ahead of common stock. The 11.5% yield is compensation for this subordinated position, not a risk-free return. Structural unfamiliar risks: Variable interest rates, perpetual, and accumulative—this combination is unfamiliar to most traditional preferred stock investors. Compared to directly holding Bitcoin: buying STRC caps the upside but opens up downside risk at the credit level. The core contradiction of BMNR: Tom Lee's performance-based compensation is tied to total Ethereum holdings, not the amount of Ethereum per share. This incentive structure means management has an incentive to issue an unlimited number of shares to buy Ethereum—even if these new shares are issued at a price lower than NAV, diluting the actual equity of each shareholder. BMNR's Q1 G&A expenses of $75 million (compared to only $960,000 in the same period last year), coupled with this incentive structure, is not accidental—it is a structural signal of management arbitrage. Red Light List/Warnings: MSTR mNAV has remained below 1.0x for over 4 weeks; STRC has been below $95 for two consecutive months and has failed to recover; Strategy announced a large-scale sale of Bitcoin; BMNR announced a large-scale issuance of new ATMs while the ETH/share ratio decreased; Bitcoin/Ethereum prices simultaneously broke through key support levels, triggering large-scale DeFi liquidations. A paradigm shift is underway, but the direction is uncertain. The foreseeable next step in the evolution: Will the ETH Treasury launch its own "STRC-like product"? Theoretically, it's entirely possible—issuing preferred shares based on staking yields, structurally more cash flow-supported than STRC. Bitmine is currently still in the pure equity financing stage, but this evolution is almost inevitable. The evolution of the entire crypto-financial engineering is shifting from "buy and hold" to "hold + structured returns." STRC is the first-generation product of this shift, and its exposed flaws will drive the emergence of the next generation of products. The Strategy story is convincing in bull markets and unsettling in bear markets—not because it will collapse, but because its premium is entirely dependent on market sentiment. Saylor's first hint at selling BTC is the first public signal that this logic is facing a stress test. The entire system has indeed generated amazing returns in bull markets, but it has also indeed suffered systemic risks in bear markets. No one involved is making a "safer" trade than holding the currency—they are making a complex leveraged bet with a specific structure, specific risks, and specific triggering conditions. Polymarket gives Strategy about a 50% probability of selling Bitcoin by the end of 2026—this isn't tail risk, it's the baseline scenario. This fact alone reflects the market's latest assessment of this funding machine. Understanding this distinction is the most basic prerequisite for avoiding losses. Conclusion: STRC is a leverage tool in a bull market, not a safe haven in a bear market; BMNR has real cash flow but a distorted incentive structure; neither is a safer option than directly holding crypto assets.