The Breakdown - Is Strategy Really the Next Terra Luna?

Episode Date: June 22, 2026

Strategy’s STRC is still trading below its $100 target and has drawn comparisons to Terra Luna. David walks through how Terra Luna actually imploded, why Strategy's flywheel is meaningfully different, and the real problem he sees underneath it all. Enjoy! FOLLOW THE SHOW › David — https://x.com/dcanellis › The Breakdown — https://x.com/TheBreakdownBW › The Breakdown Newsletter — https://blockworks.com/newsletter/the-breakdown DISCLAIMER As always, remember this podcast is for informational purposes only, and any views expressed by anyone on the show are solely their opinions, not financial advice.

Welcome back to the breakdown, everybody. I'm your host, David Tanlis, as always. Today we're going to be looking at strategy because I'm seeing so many takes out there that strategy is the next Terra Luna, that it's all going to implode, that it's a Ponzi or whatever. So why not take a look at the differences between what Terraluna did and was compared to what strategy and the stretch preferred stocks and so on are? And yeah, let's see if there's any similarities, any differences, what the risks really are, at least as we can determine them on this particular point. podcast and so on. So without further ado, let's get to it. This is the breakdown.

Nothing said on the breakdown is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only and interviews expressed by anyone on the show are opinions, not financial advice. Host and guests may haught positions in the company's funds or projects discussed. Okay, so first, I mean, this video came out at the end of last week and it just kind of sets the scene for some of the market tension going into this week now that I think it's two or three weeks now that Stretch has traded. that it's $100 target. It's currently at about $89.50 just before the market opens on Monday morning.

But yeah, let's just take a little of this really quickly. When we did stretch, you know, I designed all these with AI. You know, I couldn't have done it myself. I literally said, and I used artificial intelligence, and I went back and forth with the AI for a few hours. So you were just on that TPT, just like the rest of us, figuring out how to design these different offerings. and arguing with it and saying, can I do this? Can I do that? When we did stretch. Okay. So, I mean, I'm just, I mean, it's very easy to dunk on Sailor relying on

ChachyPT to design these financial products, especially when I think we've spent the last two or three years unpacking just what a financial wizard sailor is to design these, these flywheel machines that will pump the price of Bitcoin for all eternity, apparently. But I'm just going to put that to one side. This just gives you an understanding of where some of the market sentiment is right now in terms of stretch and strategy and so on. But, I mean, yeah, the beaters comparison is, of course, that this is a flywheel that will eventually taint the price of Bitcoin once.

It all unravels and there's no more market demand for strategy and stretch and so on for strategy to continue buying. But, I mean, so to gauge whether that is truly the case, it's worth revisiting exactly what the tarolubism. model was briefly. Okay, so I have this flow chart up on my screen, which, again, if you're following with audio only, I'm going to do my best to convey this as cleanly as possible. But when we refer to Terra, what we really mean is the UST stable coin that was intended to be pegged to the $1. And of course, this was not backed by any real assets. It was just backed by market

demand. And it was also backed by this algorithm that was meant to always return UST to a dollar peg. And so when UST fell below that $1 peg, there would be an automatic protocol swap that would burn, that would rely on arbitrages and also other market participants to burn one UST in return for $1 worth of lunar at the time of the burn. And what this would essentially do is this would contract the supply of UST, which would meant to give. upward pressure to the stable coin in order to return it to its dollar peg. And it would also inflate the supply of lunar at the same time. But what would essentially happen is that the arbitrages would feed this below peg stable coin to the algorithm and in return for $1 worth of lunar.

And of course, what would you do? If the price of lunar was not looking like it was going up at the time, which it would be very hard to do if the supply of lunar was always increasing, you would be inclined to sell that $1 worth of lunar, which would effectively mean basically all new lunar that was secreted into the market would be dumped in return to actually capitalize on that arbitrage trade. And you would have the price of lunar falling, which would in turn break confidence or reduce confidence that the UST stable coin could actually retain its pay.

And so you would have this negative feedback loop that would affect both the price of Luna and the price of the UST stable coin. And effectively, you would have the algorithm break because it wouldn't be able to satisfy the requirements of its creation in the first place, that the algorithm was meant to prop the price of the UST back to its dollar peg. So what ended up happening is that Terra, through Doquan, said, well, we actually need a more than. valuable asset to be able to sell in order to return UST to its dollar peg. And eventually they brought in Bitcoin in order to satisfy that condition. So here I have another flow chart on my screen and this is the version with Bitcoin as a reserve asset. So what would happen is that once UST depegged below $1, what would started to be termed as a death spiral would start to happen. But the Luna Foundation Guard,

is what the Bitcoin Treasury Reserve was styled as. At one point, they had $1.5 billion worth of Bitcoin ready to sell in order to buy UST on the open market and prop the price back up. So we're already not at it. We're no longer at an algorithmic stable coin. We're at this weird pseudo-alorithmic stable coin that needs a relatively valuable asset in Bitcoin in order to sell in order to prop it back up. But of course, what would end up happening if you know if the

The market knows that there is a massive entity out there selling overtime $1.5 billion worth of Bitcoin. Of course, the price of Bitcoin is going to fall, which then we start entering the world of market contagion. And you no longer have confidence in the price of UST. You don't have any confidence in the price of Luna. You have failing confidence in the price of Bitcoin. And of course, the UST stablecoin is going to depend even further. And eventually, you will run out of Luna because the price of lunar is effectively going

to zero. You run out of Bitcoin because you run out of Bitcoin to sell to prop up the price of Bitcoin. And eventually you have nothing left at the end of the day. At the end of the day. And of course, we all know how it turned out. The price of Luna went to zero. The stable coin went to zero. And it effectively created one of the longest and most arduous Bitcoin crypto bear markets in its history. I'm actually going to pull this up on my screen here to see the relationship. We can see the relationship between the price of Bitcoin in Brown here. and the Terra stable coin in the blue dotted line. So we can see that invested confidence,

we know that the market had turned on Terra Luna at around April, beginning of April, leading into its stellar collapse in May. And throughout that time, the price of Bitcoin was very weak. It started this whole process at around 46.6K. By the time that the UST collapsed, Bitcoin had fallen to around $30,000. So basically a third retracement. And then by the end of the whole debacle in mid-June, the price of Bitcoin had fallen to

$22.5,000 US dollars down from over 45-46K. So about a 50% reduction in the price of Bitcoin throughout all of this drama. And of course, the terror situation wasn't the only bad thing had to happen to Bitcoin and crypto in 2022. Because as we can see, I have this up on my screen here, that we can see that the terror collapse in May June sent the price of Bitcoin immediately spiraling. And then it went sideways for a few months right up until the FTX debacle kicked off and sank it even further. So we all know that 2022 was a very bad year for crypto and Bitcoin. But of course, the

Terra Lunar algorithm imploding in this death spiral, of course, set it all off for the 2022 to bear market. So that's what people are worried about. I go in to happen with strategy and Bitcoin this time around because we also do have this new flywheel that has emerged that is running out of steam right now. So let's now take a look at a very similar flow chart, but for strategy and Stretch and Bitcoin to see how they compare. Okay. So for those unfamiliar with Stretch, it is a perpetual preferred stock that is essentially a capital raising technique for strategy. because initially it sold corporate bonds. I think it raised a few billion dollars worth of corporate bonds,

very traditional means of raising capital in order to fund its Bitcoin acquisition. And of course, it basically bought all the Bitcoin that it could afford with those bond sales. And effectively, it switched over to this preferred perpetual share system through stretch. And there's a few other ones that are also quite similar. But stretch is by far the biggest. And effectively, the target is for each. stretch share to be worth $100. And that is $100 worth of liability.

It doesn't matter where stretch trades on the market right now is a trading about $89.5 US dollars compared to its $100 target. So it's trading well under what the target is meant to be. But on Strategies, books, it still counts as $100 worth of liabilities because there's this whole thing that if strategy went bankrupt and it had to divvy up its assets in order to pay its sharehold. The shareholders would still have legal claim to $100 worth of the assets because that's what the target price is for the preferred stock. So there's this sense that it is $100 worth of liabilities.

But what it also means is that strategy is not really incentivized to continue selling new stretch stock on the market if the market is valuing it at under $100 because that would mean that it is accepting, say, $90 worth of capital for $100 worth of liabilities. And of course, that doesn't really make a lot of business sense at all. So strategy effectively stops selling Stretch directly when the price of Stretch drops below its $100 target. And I imagine it will continue to sell Stretch if it does, if and when it does return to that $100 part.

So this is how the system works. When Stretch trades near $100, strategy is incentivized. to issue new stretch via its at-the-market program in order to raise fresh cash. It will spend that fresh cash on buying Bitcoin, which means the Treasury grows. But right now it owes 11.5% dividend on any capital raised by selling stretch directly. Right now that is to the tune of $1.2 billion worth of dividend payments that are owed to stretch shareholders. So those dividends have to be paid in cash.

In order to secure that cash, strategy needs to either issue, it has two levers that it can pull. It can issue micro strategy stock, strategy stock and sell that in order to raise the cash to pay the dividend, or it can sell some of its Bitcoin in order to raise cash to pay the dividend. And we saw that happen a few weeks ago when strategy sold 32 Bitcoin and raised $1.5 million or something like that in order to satisfy its dividend payments. So it has these levers that it can pull. Another lever it can pull in order to bring stretch back to its $100 target is to adjust the dividend payment. So it can say, well, we're going to pay even more dividend in order to inspire new shareholders or existing shareholders to add more capital to the stretch flywheel because they'll get more cash in return for it.

But what we're actually seeing right now is that what the market is doing is actually repricing stretch lower in order to be about on par with what strives, is another Bitcoin treasury company, strives similar offering Sata is doing because Sata is offering a slightly higher dividend payment of around 13%. While if you compare the lower price of the stretch stock in relation to its 11.5 dividend, you actually run those numbers and you'll see that stretch is technically offering a 12.9% right now at current prices for, for stretch stock.

So what we're actually seeing is the market just priced these two assets about the same because stretch is actually carrying somewhat more risk compared to Sata, because Sata doesn't have as much debt as what strategy does, because it never really raised these corporate bonds and so on. So if this is how strategy and stretch works, like, are the two systems comparable at all? And it's like, well, first, let's just focus on the differences between, Terra Luna and strategy. So is strategy and the stretch flywheel comparable to Terraluna? I mean, let's just look at the differences first. I mean, primarily the biggest difference

is that Terra Luna was this automated algorithm at the protocol level. So there was an automated system for minting and burning, which guaranteed that there was going to be a mechanical, unstoppable spiral at some point. Stretch and strategy is like strategy has a board. that decides what the dividend payment is, whether they would need to suspend the dividend. They also decide what levers they will pull at any moment. So in general, stretch and strategy is a much more discretionary system compared to Terra Luda. So that is really the biggest difference is that you have this system in place with strategy that comes down to human reasoning and understanding the market dynamics

and then responding to those market dynamics in such a way that might inspire the flywheel to either continue growing or at least slow down while the market demand figures itself out. So that has consequences. I mean, the biggest one is that the UST was redeemable on demand. So the actual act of arbitrage forced the spiral to deepen and worsen overtime. And that arbitrage was anyone was able to do that at the protocol level. Stretch, there's no redemption. It's not like that someone who bought Stretch at $90 can then go and redeem $100 worth of strategy

stock or something like that through strategy itself. There's nothing actually forcing the price of stretch back to $100 except investor confidence and market demand. So there's no automated redemption. There's no automatic or automated death spiral that, can really happen with stretch and strategy. If there is anything bad that's going to happen to stretch and strategy and Bitcoin is going to be a slow and gradual grind downwards. And really, that would be exacerbated by the market looking at strategy beginning to sell Bitcoin and

worrying what that might have to do with the price of Bitcoin over time. But that is very different than this immediate death spiral that happened with UST-de-pegging and also the, demand for Luna drying up because there was no more, there's no more incentive to keep that flywheel ticking over because Lunar itself was not a very valuable asset. It's not backed by anything. The only thing it was backed by was the health of the UST peg, which is it was turned out to be incredibly flimsy. We all know that. Bitcoin itself is a much different, deeper beast than Lunar was at any point in time. But there are similarities. There are similarities. it is between strategy and stretch and terraluna and i hope that we can have an honest conversation

about that but the biggest one is that both terraluna and stretch and all that are relying on this high high yield system in order to keep capital flowing into the system and staying in the system so anchor was famously offering 20 percent apy on u s t deposits in order to reinforce investor confidence in in the ust peg stretch is offering 11.5 percent dividend in order to bring people into the system and retain them. So that in turn, I mean, that implies that stretch and strategy they need continual access to capital in order to keep this whole thing ticking over. If strategy's whole thing is that it's going to continue acquiring Bitcoin and paying out a dividend to stretch to shareholders in order to facilitate that buying and keep buying the top forever, Laura, all that kind of stuff,

then it needs fresh capital flowing into it. The same thing happened with UST and Luna. You needed people who are willing to buy the UST token and then arbitrage it in order to keep the price of the stable coin at its dollar peg. It needs this fresh inflow of capital in order to actually to be its healthiest, at least in strategy's case. I will say that. But what the biggest difference in terms of that is that strategy is able to survive a long and slow grinding down of the price of Bitcoin and still be okay.

because it does have this giant treasury of Bitcoin in order to satisfy those dividend payments. And as well, it's able to dilute micro strategy shares and so on as well. Another big similarity is that both systems have this volatility absorbing asset. For Terra Luna, it was Luna that you could redeem one UST for $1 worth of Luna and that this arbitrage system were meant to be inspire the peg to return to $1. We have that in strategy. It's the micro strategy stock,

that the volatility around micro strategy is less of a concern, it seems, than the price of Bitcoin and also the stretch preferred shares because you would rather, it doesn't really matter what happens with micro strategy stock if money is going to keep flowing in through stretch, and into the price of Bitcoin, which again would prop up the price of micro strategy stock in return because the value of its treasury increases over time, you would say.

So you both have these systems that have this buffer, this shock absorber of an asset. And that was Luna and in strategy's case, it's strategy stock. But of course, micro strategy is a real business and it is backed by its treasury is backed by Bitcoin. Luna did not have the same benefits and positives as what Microstrategy does with Bitcoin, obviously. So in terms of similarities, I mean, that is about it at the end of the day. I wouldn't say that Terra Luna and strategy are equal or equivalent or whatever. I also wouldn't say that Stretch and Strategy are Ponzi's teams or whatever. Obviously, strategy can survive quite a long time paying out its dividend payments,

even if the price of Bitcoin does slide, what would be bad for strategy and I guess the space overall and anyone working in crypto is if the price of Bitcoin just imploded overnight in the same way that Luna did, or at least over a week, let's say the price of Bitcoin collapsed 80% in a week. Of course, that would be bad for not only micro strategy stock, but for stretch as well. And it would call into question the ability of strategy to be able to buy the dip and so on, and also even satisfy payments. And at that point, I'm sure we would see strategy pause dividend payments in order to wait for the market to return to normal conditions. But setting that aside and whether or not that's realistic, and we have to imagine that there is a world where something like

that, I suppose, could happen, especially if you have someone like strategy that might need to liquidate a ton of Bitcoin at once in order to satisfy dividend payments. But it would be much more likely that strategy would simply pause the dividend payments rather than risk a death spiral to that effect. And that, that again is really the biggest difference here is that Terra Luna was this automated death spiral that was almost pre-programmed, predestined to occur. And of course, we have found all this out after the fact. The protocol itself, Luna, seemed much healthier than it really was because we know that behind the scenes there was all this secret dealings to prop up the price of UST and Luna

in order to keep the illusion that Luna and Terra were much healthier than they were. And of course, now we have Doquan facing, I think, 15 years in prison for misrepresenting what the risks truly were. But with strategy and stretch, whatever decisions need to be made can be made at a much slower pace. And there is much more control and discretion over how the flywheel can respond to the market dynamics and market demand and so on. So perhaps centralization is actually what saves strategy and stretch from the comparisons with Terra Luna. So there is something to be said for that.

But what I will say is that what is quite difficult, at least from a conceptual perspective, because, okay, setting aside the similarities and differences between strategy and Terra Luna and so on, and we know that maybe this, maybe the comparison is not totally justified. What is incredibly frustrating, though, to me is that you can't really draw a direct line between micro strategy and what's happening with Stretch to demand for Bitcoin. It's not like Stretch shareholders are interested in pumping the price of Bitcoin. What they would probably be interested in is the yield, the cash dividend. That is what is most interesting about this particular, from a shareholder perspective.

From a Bitcoin perspective, I suppose it makes sense that you really like that you have strategy running this crazy flywheel because in the best case scenario, the price of Bitcoin will go up because strategy will just have endless amount of money flowing into it that will spend the price of Bitcoin and they're never going to sell it and scarcity increases even more and the price of Bitcoin is just going to go to the moon. I get all that. But it just feels so fake to me. It is not really demand for Bitcoin at the end of the day. And if we, the longer we pretend that strategy and stretch are equivalent to demand for Bitcoin, then we're going to end up with a big giant disconnect over what the value proposition of Bitcoin is at the end of the day.

Because is it the protocol? Is it the store of value? Or is it the fact that you have someone like Sailor using chat GPT to design, these crazy flywheels that are meant to constantly inspire interest in strategy, the company, and not really Bitcoin itself. I worry at some point all of this is going to break down to the point that if there is some negative impact on the price of Bitcoin because the flywheel stops and because some kind of mismanagement happens at the top end of strategy and all of a sudden this does

turns sour, I'm not too sure where the bottom is meant to be for the true interest and market demand for Bitcoin as a cryptocurrency, as a store of value, and so on. Increasingly, it feels like Bitcoin is backed by the ability for Sailor to use ChatGBT GBT appropriately. And personally, that worries me quite a little. But of course, what the read is, is that whatever negative could happen to Bitcoin is going to, through strategy and stretch, it will happen on a very slow and gradual process. And of course, those processes are able to be mitigated by smart decision making at the top. So this might be a little bit of a pessimistic read for a Monday morning.

But unfortunately, that is the reality of what we are living in through the current Bitcoin market. So all eyes are going to be on Stretch strategy over the next few weeks to see if Stretch does return to its $100 target and we see more capital flowing into strategy in order for it to continue buying. Let's just have a look at the current state of strategy as well. So I have this up on my screen here. This gives a window into the broad strokes of strategy financials. So the Bitcoin that it bought, it spent $64.1 billion to acquire that Bitcoin.

Right now, the same Bitcoin is worth. $53.3 billion. So it's actually underwater on its Bitcoin to date. The convertible debt, the bonds that it sold, it's actually $6.7 billion worth of convertible debt that it owes bond holders, bond buyers. It is also all of its preferred shares, so not just stretch included, is it $15.5 billion. So that's how many preferred shares are floating out there and that it owes dividend payments on. the cash reserves that it has is about $1.1 billion. I think that's correct. It might be a little bit less right now.

So it has about a year's or less than a year's worth of cash on hand to satisfy its dividend payments. So all of this is going to come to ahead over the next few quarters. It is going to have to either dilute strategy shareholders more or it is going to have to sell Bitcoin in order to satisfy those dividend payments. So we're going to see exactly how, Strategies Board responds to these market dynamics. And I suppose that is in turn what is going to bring investor confidence back to stretch,

you would hope, and in general, the Bitcoin market overall. But again, it's going to be something to watch very closely. And all of that said, I have to wonder what the Bitcoin market would look like if there wasn't a strategy right now. Perhaps we wouldn't even see as higher prices as we do right now. I'm not too sure. It's this replacement of invested demand of Bitcoin into invested demand into these energetic financial games that Sailor is playing that concerns me and just wonders what the timeline split actually was and what the world would look like if strategy was not around today and never ramped up its buying to begin with. But I suppose we'll never know.

So in any case, this was the breakdown for this morning. We'll touch you again later in the week for more. So as always, look after yourselves. Goodbye.