Ripple CEO Brad Garlinghouse said that he remains optimistic about Bitcoin, but that the preferred share model that Michael Saylor uses to finance Bitcoin purchases is hurting the crypto market overall. Garlinghouse based his criticism specifically on the sharp devaluation of Strategy’s STRC preferred stock.
The STRC model was at the center of criticism
In his interview with CNBC, Garlinghouse emphasized that financial engineering does not produce long-term value, and that permanent value in digital assets comes mainly from the field of use. Garlinghouse, who runs the company behind the XRP ecosystem, argued that Michael Saylor’s team was focused on the wrong priorities, which negatively impacted the broader market.
Garlinghouse emphasized that financial engineering does not create long-term value and that the real power of digital assets comes from their areas of use.
Garlinghouse, however, reserved his view on Bitcoin and made it clear that he was not against the asset. The target of his criticism was not Bitcoin, but the financing mechanism that Strategy has been using to buy more Bitcoin for the last year or so.
Under this model, Strategy raises cash by issuing preferred shares that pay fixed dividends. The company’s STRC stock carries an annual dividend of 11.5% and is targeted to trade at around $100. However, the stock fell approximately 25% below this level, hitting a record low.
Mini glossary: Preferred stock is a type of share that usually pays fixed dividends and carries different rights than common shares. These instruments allow companies to raise capital without borrowing, but if the market price falls below the target level, the appeal of new issues may weaken.
| Indicator | Data |
|---|---|
| STRC annual dividend | 11.5% |
| Target level | 100 dollars |
| latest setback | About 25% |
| bitcoin level | Under $59,000 |
Pressure in the market increased with the decline in Bitcoin
On Thursday, STRC stock fell 26% below its par value. Strategy’s common shares also fell to their lowest level since February 2024, closing Friday at about $82. During the same period, the price of Bitcoin fell below $59,000.
In its report, CryptoQuant stated that Strategy should take a break from Bitcoin purchases and strengthen its cash reserves again. The company’s buffer supporting STRC dividends was calculated to have decreased from a coverage period of over seven years to approximately 14 months. When STRC stock is trading below $100, the mechanism that funds the purchase of Bitcoin by issuing new shares also slows down.
CryptoQuant noted that the financial buffer supporting dividends has shrunk from levels exceeding seven years to approximately 14 months.
Analysts disagree on the view that the model is completely broken
Benchmark and StoneX analyst Mark Palmer made a more cautious assessment. Palmer argued that Strategy’s financing mechanism had not become completely dysfunctional, but was operating at lower efficiency than before. He also objected to drawing a direct analogy between STRC and completely collapsed assets.
The discussion brought to the fore again the question marks regarding the sustainability of models that finance Bitcoin purchases with capital market instruments. Particularly during periods of increased price pressure, it appears that such structures can put additional pressure on both company shares and the broader crypto market.
