STRC Risks, Banks and Bitcoin, Charles Schwab, and Bitcoin Staking

1. A multi-year Bitcoin drawdown
The biggest risk to STRC is a Bitcoin drawdown that remains low for years. STRC pays its ~10% dividend from STRC capital raises. If BTC enters into a prolonged bear market and investors lose interest, raising additional capital via STRC becomes more difficult (see #2).

Right now, Strategy holds $1.488 billion in annual dividend and interest obligations across all preferreds and convertibles. To cover these obligations, it holds a $2.25 billion USD reserve (18.1 months coverage) and about $66 billion in Bitcoin (44 years of coverage).

2. Capital markets access
If Strategy is not able to issue STRC into the market, its ability to pay the dividend from raising new capital slows. In this case, they have to dip into the cash reserves or BTC asset base.

Risks #1 and #2 are a negative reflexive flywheel, the main risks to STRC and the entire Bitcoin ecosystem. However, Strategy is taking measures to address this negative relexivity (cash reserves, ability to lower the yield, ability to pause dividends, and more).

3. Cumulative deferral
Strategy can defer the STRC dividend whenever it chooses. These deferred payments accrue and compound monthly. If you’re an STRC investor who relies on the interest payment for your operations, this is a real risk. James Lavish calls this a last-resort action.

4. Tax classification
The STRC dividend is classified as a return of capital. This is a favorable tax treatment, as investors do not pay income tax on a ROC. Strategy can change this tax treatment if it chooses, which would reduce the total yield.

The data on the DeFi side looks positive per recent Galaxy reports — the dollar-denominated value of outstanding DeFi loans hit $40 billion in Q3 2025.

However, the banks are coming for Bitcoin-backed lending. SAB 121 was repealed in January 2025, allowing banks to custody Bitcoin. Since then, JPMorgan, BNY Mellon, and others have started to custody Bitcoin and offer Bitcoin-backed loans. Over $50 billion in new Bitcoin-backed credit lines were extended in late 2025 alone, according to a report by PwC and Kaiko Research.

DeFi has properties that banks cannot match (speed, accessibility, low cost). DeFi must lean into these properties to beat out strong incumbents.

The fact that Charles Schwab — whose 47 million clients own over $12 trillion in assets — is positioning Bitcoin/crypto as even a potential allocation to a standard portfolio is important. This report also coincides closely with Charles Schwab adding options to buy Bitcoin and Ethereum to their platform.

To summarize the framing in their report, they do not outright recommend allocating to Bitcoin. They put that decision on the investor. But they give a few tools for investors who decide to allocate to crypto. This approach allows Charles Schwab to construct portfolio analyses based on individual investors' views of Bitcoin’s future performance.

This leads to the chart shown below. Here’s the interpretation with a simple example: “If an investor with a moderate risk tolerance thinks that Bitcoin will return 15% a year, they should allocate 6.6% of their portfolio to Bitcoin.”

Past results don’t equal future performance, but a 15% return is historically very low for Bitcoin — even if you bought Bitcoin at the euphoric top in 2018, it returned a ~25% CAGR over 8 years.

In all, Charles Schwab has around ~40 million clients who own ~$12 trillion in assets. Their report and reframe isn’t as prescriptive as Fidelity, but it’s a big step forward.

Here’s how it works — over a 6-month bonding period,
1. Lock BTC on Bitcoin’s L1. You maintain custody of your BTC with your own keys for the 6-month term. The locking mechanism is a standard Bitcoin script called OP_CHECKLOCKTIMEVERIFY.

2. At the same time, lock STX (at a ratio of about $100 of BTC to $5 of STX).

The design is simple.

So where does the yield come from? It’s using Stacks’ Proof of Transfer consensus mechanism that has distributed 4,200 BTC through miner activity since January 2021.

Bitcoin staking is a product of countless investor interviews over the years. It aims to serve a market that wants to earn a yield on their BTC, without taking on the typical risks of Bitcoin financial products.

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