Convertible Notes vs. Bitcoin-Backed Preferred Stock: Inside Strategy’s Playbook for Yield Investors

Key Takeaways

• Convertible notes are short-duration instruments with capped upside and credit risk exposure, making them less aligned with long-term Bitcoin holding products.
• Preferred stock offers perpetual income, no repayment risk, and aligns with multi-decade wealth strategies.
• Strategy’s preferred instruments aim to outperform traditional credit ETFs by offering higher yields and Bitcoin-backed collateral.
• STRF, STRK, and STRD offer different features matching different investor goals.

Strategy holds Bitcoin as a long-term treasury asset and does not sell the Bitcoin. Instead, Strategy uses Bitcoin on its balance sheet as overcollateralized backing to issue income-generating preferred stock. This structure allows investors to earn yield tied to Strategy’s Bitcoin reserves. Meanwhile, the company retains full ownership of its BTC.

Strategy holds 592,100 BTC , equivalent to around $63 billion at current prices on June 17, 2025. This article examines how preferred stock aligns with Bitcoin’s long-term volatility and growth trajectory, and why pairing Strategy’s preferred shares with a BTC position can complement an investor’s income profile.

Why Strategy Moved On From Convertible Senior Notes?

A convertible senior note is a type of corporate debt that can be converted into company shares, but with structural limits. Convertible senior notes limit upside due to fixed conversion prices and maturity dates, creating repayment pressure that can restrict full participation in Bitcoin’s long-term growth.

Strategy previously issued a $2.6 billion 0% convertible note in November 2024, followed by a $2 billion tranche in February 2025. These convertible notes mature in 2029-2030 and may be converted into cash, MSTR shares, or a combination of both. If the notes aren’t converted before maturity, the company must return the full principal to holders at maturity.

Why Preferred Stock Aligns Better with Bitcoin

Recognizing the limitations of short-term convertible senior notes, Strategy has shifted toward issuing Bitcoin-backed preferred stock, an approach more in line with Bitcoin’s long-term outlook. This structure may appeal to certain investors as a complementary option alongside a direct hodl Bitcoin holding. 

These offerings deliver perpetual income and a resilient capital structure, without any repayment or forced‐liquidation risk for Strategy. 

Instead of pledging BTC as debt collateral, Strategy leverages its over-collateralized Bitcoin reserves to underwrite yield-generating securities, so investors earn income while Strategy keeps its Bitcoin intact.

Who Are Strategy’s Preferred Shares Designed For?

Strategy’s Bitcoin-backed preferred shares (STRK, STRF, STRD) are structured for institutions, high-net-worth individuals, and capital allocators seeking exposure to Bitcoin’s longer-term potential without facing direct volatility. 

This model appeals to those who value cash flow, tax efficiency, and long-term asset appreciation, especially in environments where Bitcoin is expected to increase in value over decades.

Comparing Strategy’s Preferred Shares: STRK vs. STRF vs. STRD

Strategy’s three Bitcoin-backed preferred shares STRK , STRF , and STRD are tailored to different investor profiles. Each offers the potential for quarterly income, though payments are not fixed or guaranteed.

Strategy’s preferred shares are structured without maturity or principal repayment, and proceeds from the issuance are used to acquire Bitcoin and working capital. Each share class plays a role in a capital stack designed to match different investor objectives.

STRK: Strategy’s 8% Perpetual Strike Preferred Stock

A Bitcoin-backed hybrid share that pays income and lets you optionally convert into MSTR equity at quarter-end.

Key Features:

• Dividend coupon: 8.00 % p.a. on $100 par, (initial offering price was $80 per share), paid quarterly in cash, stock, or a cash/stock mix if declared by the board.
• Conversion option: 0.1 MSTR per STRK (implied $1,000 conversion price), exercisable on the last business day of each quarter.
• Yield protection: Pays 8 % even if MSTR dips, meaning the income isn’t clawed back by equity moves.
• Use of proceeds: Proceeds fund ongoing Bitcoin purchases and general corporate needs (March 2025 ATM program).
• Market validation: Since its Jan 31, 2025 launch, STRK has delivered +29% price return (vs. –5.5 % median for all preferreds) and averages $31 million daily volume, among the highest in the preferred market.
• Liquidity & scale: Publicly traded as part of a $21 B at-the-market issuance, ensuring ample daily trading depths.

STRF: Fixed Yield Without Equity Exposure

STRF is Strategy’s high-yield, fixed-income preferred share designed for a class of investors focused on income generation instead of holding assets with excessive volatility. STRF does not offer equity conversion and is positioned for those prioritizing yield stability.

Key Features:

• Yield: 10.00 % p.a. on $100 par , (initial offering price was $85 per share), paid quarterly in cash if and when declared by the board.
• Escalating protection: If Strategy misses a dividend STRF’s coupon ratchets up by +1% on the next payment, capped at 18%.
• Convertibility: None pure income focus.
• Use of proceeds: $2.1 billion ATM program launched May 2025 to fund further Bitcoin purchases and working capital, all per Strategy’s May 22, 2025 prospectus supplement.
• Collateral: Over-collateralized with BTC reserves (6× cover ratio), so there’s more Bitcoin pledged than needed to back dividend obligations.
• Market validation: Since its March 21, 2025 pricing, STRF has returned +21% price gain and logged ~$23 million average daily volumes vs. ~$0.4 million median for peers.

STRD: High-Yield, Non-Cumulative Preferred Stock

Strategy’s STRD is its most flexible, high-yield preferred share, tailored for risk-tolerant investors seeking income exposure to its Bitcoin strategy.

Key Features:

• Dividend: 10% annual yield on $100 par, non-cumulative and only paid if declared, unlike STRF’s dividends, STRD’s do not accrue when undeclared.
• Payouts: Quarterly in arrears starting Sept 30, 2025.
• Convertibility: No equity upside or conversion option.
• Call option: Strategy can redeem all outstanding STRD stock if the total shares fall below 25% of the issued initial amount, or upon certain tax-trigger events, with holders receiving the liquidation preference plus any declared, unpaid dividends
• Fundamental change: Holders can require Strategy to buy back shares at par plus declared dividends.
• Proceeds use: To fund Bitcoin purchases and general corporate needs.

Choosing Between STRF, STRK, and STRD: What Fits Your Risk and Income Profile?

In Strategy’s preferred capital structure, each security has a different priority level that affects dividend reliability and downside protection:

• STRF (fixed yield): Ranks senior to both STRK and STRD. Holders of STRF have first claim on dividends and capital distributions, making it the most conservative of the three instruments.
• STRK (strike convertible): Ranks below STRF but above STRD. It provides middle-tier protection, balancing income with potential equity upside through its conversion feature.
• STRD (floating yield): Ranks junior to both STRK and STRF. As the lowest-ranking instrument, it carries a higher yield potential but less security in adverse conditions.

This hierarchy helps investors choose based on risk tolerance and income needs: STRF for safety-first holders, STRK for a hybrid income-plus-upside play, and STRD for those chasing higher yields with less certainty of quarterly payments.

Bitcoin ETFs vs. Strategy’s Preferred Securities: What Sets Them Apart

Strategy aims to challenge the ETF model directly with yield-oriented instruments offering 8–10% annual returns, fully backed by a single, highly liquid asset in Bitcoin. These preferred shares are publicly traded on major exchanges and are designed to be liquid, transparent, and institutional-grade.

According to Michael Saylor, Strategy’s preferred securities represent an upgrade over traditional Bitcoin ETFs, featuring lower fees, higher yields, cleaner collateral, and deeper liquidity.

Can Strategy Be Margin Called?

No. STRK, STRF, and STRD are equity securities, not loans, so they carry no maintenance-margin requirements or collateral covenants. 

A drop in Bitcoin’s price does not “trigger” any forced sale of BTC. The only ways these shares can be redeemed are through corporate actions, board-approved redemptions or fundamental-change repurchases, rather than any price-based margin calls.

Benefits of Strategy’s Preferred Stock Model

Here are the key advantages that make Strategy’s Bitcoin-backed preferred shares an attractive complement to direct BTC holdings:

• Perpetual income potential: Targeted annual yields of 8–10%, appealing to income-focused investors seeking Bitcoin exposure without directly holding its volatility.
• No maturity, no repayment risk: These instruments are perpetual, there’s no principal to repay, removing the refinancing or liquidation pressure common with traditional bonds.
• Bitcoin-backed collateral: All three offerings are indirectly collateralized by Bitcoin reserves, offering exposure to BTC without holding the asset directly.
• Diversified structures for different goals: From high-yield fixed income (STRF) to equity-convertible hybrid (STRK) to high-risk, flexible income (STRD), investors can choose based on risk tolerance and objectives.
• Liquidation preference on STRD: The floating liquidation preference protects STRD holders by adjusting to market prices.
• Public market liquidity: These shares are tradeable and issued via a registered shelf offering, providing easier exit options than many private yield instruments.

Key Risks Hidden in Strategy’s Preferred Capital Stack

Here are some of the risks of Strategy’s Bitcoin-backed preferred shares, including:

• Dividends are discretionary and non-cumulative: The Strategy isn’t obligated to pay quarterly dividends. If skipped, they are not owed later. This affects income predictability.
• Subordination matters: STRD ranks lowest in the capital stack, meaning it gets paid last. STRK is middle-tier, while STRF sits at the top. This affects how protected each investment is in a downturn.
• Bitcoin exposure cuts both ways: While BTC upside can boost the Strategy’s balance sheet, any deep Bitcoin drawdown can impair the company’s ability to sustain dividends or trigger redemptions.
• No equity upside (for STRF and STRD): Only STRK allows conversion to common stock. STRF and STRD offer no participation in Strategy’s long-term equity appreciation.
• Call/Redemption risk: Strategy can redeem STRD under certain conditions (e.g. if <25% remain outstanding), which could force investors out earlier than expected.
• Complexity and novelty: These are relatively new instruments, with structures not yet fully tested in market stress scenarios, due diligence is key.

Conclusion

Strategy’s shift from convertible senior notes to Bitcoin-backed preferred shares creates a truly perpetual, yield-focused vehicle. By issuing STRK, STRF, and STRD, each over-collateralized by Bitcoin reserves, investors gain 8–10% targeted annual dividends without maturity or forced repayment risk. STRK adds an optional equity conversion for upside participation, while STRF and STRD cater to pure income and high-yield profiles.

These preferred structures avoid the fixed maturity dates and upside caps of convertible debt, better matching Bitcoin’s multi-decade growth cycle. However, dividend payments are discretionary and junior-ranked, so investors remain exposed to board decisions and market volatility.

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