For those still not sure what's MSTR and STRC:

MSTR is a tech company stock that has pivoted primarily into a "BTC treasury", primarily using leveraged debt to buy BTC.

STRC is a hybrid stock/perp bond instrument pegged at $100, that pays dividend every month (11% APY).

The purpose is to raise cash to buy BTC, to help MSTR.

The feedback loop that everyone keeps talking about:

If STRC de-pegs, Strategy will need to raise the dividend to get people back in to try to re-peg to regain confidence and avoid a "bank run".

If the dividend is raised, it can come with a risk of less capital to pay the dividend over time, and less cash to buy BTC, less capital and assets for leverage, as the raised dividend drains more cash more quickly.

If there's less cash to buy BTC, and STRC loses its ability to raise capital, MSTR loses its incentive and value.

If MSTR loses its incentive and value, that's less money for capital and leverage.

If that happens, Strategy will have to either dilute shares of MSTR to raise capital, making it lose more of its value, or sell more BTC.

If that happens, it will negatively affect STRC's incentive and make it de-peg more once again, and the loop goes back in a circle.

So when does this feedback loop turn into a death spiral?

If BTC drops enough, for a long enough period of time, then it's gonna increase the chances of the feedback loop to turn into a death spiral.

More people could panic out of MSTR and STRC. Which can amplify the feedback loop, which will get even more people to panic out.

If MSTR and STRC tank too much, and start having to take drastic action, like selling BTC, then BTC's price could tank more, which could make MSTR and STRC tank even more.

Not written with AI (despite being more than 1 paragraph and having titles).