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Among the many lessons you can draw from the recent travails of bitcoin vehicle Strategy (formerly MicroStrategy), one of the most important is this:
Don’t ask an AI chatbot to design your capital instruments.
Michael Saylor did exactly that. Go to the 32:30 mark in Coindesk’s interview, available here, from which the below clip is taken:
The result was the Stretch (STRC) perpetual preferred stock, which may go down as the first security specifically engineered to destroy the value of its issuer. It’s like having Hal 9000 as your corporate finance adviser.
When Strategy unveiled the Stretch in July 2025, management hailed it as the apogee of “digital credit” and emphasised that it would raise the dividend whenever necessary to keep Stretch trading at a $100 par value. Strategy has not been shy about issuing Stretch to buy ever more bitcoin. The total amount outstanding today is $10.5bn.
The problem is that keeping Stretch at par has proved far more expensive than expected. Since the listing in July 2025, Strategy has raised the dividend five times, from 9 per cent to 11.5 per cent. Even that has not been enough. Stretch closed yesterday at $89, implying a current yield of roughly 13 per cent. If Saylor wants to drag the security back to par, the dividend will probably have to rise again, perhaps to something closer to 14 per cent.
The difficulty, of course, is that Strategy generates little meaningful operating cash flow from its legacy software business. It can service those dividends only through fresh capital raising or by selling bitcoin.
One way to describe Stretch is as a “death spiral unconvertible”. In a classic death spiral convertible, the debt converts into a set dollar amount in stock. As the stock price falls, the company must issue more shares to satisfy the same debt obligation. The resulting dilution pushes the stock lower still, creating a viciously self-reinforcing cycle.
Stretch has some striking parallels. There is no conversion into common stock, but when the preferred trades below par the company faces a quasi-commitment to raise the dividend in order to pull the price back towards $100. A higher dividend, however, increases Strategy’s cash obligations, which in turn requires either more stock issuance or bitcoin sales.
That creates a different sort of spiral. In a traditional death spiral, the company consumes its equity. In Stretch’s case, it risks consuming the equity or the asset base that underpins the entire investment story.
Strategy tested the waters a few weeks ago by selling a token 32 bitcoin to raise $2.5mn. The market did not like it. Both bitcoin and Strategy shares fell sharply. Saylor said at a bitcoin confab in Prague that he had never committed the company to never selling bitcoin, but merely advised “you” to HODL. Even his online fan club found that distinction difficult to swallow, and reporters quickly unearthed numerous instances in which Saylor had promised not to sell bitcoin.
Selling common stock to fund ever-higher preferred dividends is hardly an attractive alternative. Strategy shares have fallen nearly 80 per cent from the all-time high reached in November 2024. The company could simply allow Stretch to drift lower, as it has with its other classes of preferred securities. But — after such a public and high-profile campaign to promote the instrument, complete with AI-generated videos featuring bikini-clad women luxuriating at tropical resorts — that would deal a severe blow to its credibility.
Another option would be to suspend the dividend. But because Stretch dividends are cumulative, that offers only limited relief. The company would suffer a reputational hit, while common shareholders would gain little benefit, since the unpaid dividends would continue to accumulate ahead of them in the capital structure and retain seniority in any liquidation. At best, suspension buys time.
The cleanest solution may be a buyback. It requires a certain amount of chutzpah to position Stretch as a money market fund-like instrument and then repurchase it only months later, particularly against the backdrop of a stock market setting new records. Yet Stretch is beginning to operate like a tapeworm inside the Strategy belly. The longer it remains there, the more nutrients it consumes. It may be better to expel it sooner rather than later.
In short, Stretch was marketed as an “iPhone moment” for digital credit, but it has turned into something far more sinister for shareholders. Stretch’s appeal depends on management’s willingness to transfer larger and larger amounts of value from common stockholders to preferred ones. Traditional death spiral convertibles consume equity through dilution. Stretch threatens to consume the asset base itself.
