Ripple CEO Brad Garlinghouse criticized the Strategy model for funding Bitcoin purchases through preferred shares, calling it harmful to the market.
In a recent interview with CNBC, Ripple CEO Brad Garlinghouse shared his positive outlook on Bitcoin but voiced strong criticism of the Strategy model, which raises funds for cryptocurrency purchases by issuing preferred shares. He labeled this approach as harmful to the market.
“Financial engineering does not create long-term value,” Garlinghouse remarked.
He emphasized that the true value of any digital asset lies in its utility.
For approximately a year, Strategy has been financing its cryptocurrency acquisitions through the issuance of preferred shares that offer a fixed annual dividend. These STRC shares are designed to yield an 11.5% return and are expected to trade around $100. However, Garlinghouse pointed out that STRC is currently trading about 25% below this target, describing it as a "devastating indictment" of the strategy.
On June 26, STRC reached a new low, falling to 28% below par value with a closing price of $74.6. Concurrently, Strategy's common stock (MSTR) dropped to its lowest point since February 2024, closing at $82.3, while Bitcoin was priced under $59,000.
The company's market capitalization relative to its Bitcoin assets, known as the mNAV ratio, has fallen to 0.99.
Just two days before Garlinghouse's remarks, CryptoQuant advised Strategy to pause its cryptocurrency purchases and focus on rebuilding its cash reserves. Analysts estimate that the dividend coverage for STRC has diminished significantly, from over seven years down to roughly 14 months.
Additionally, in June, Strategy founder Michael Saylor unveiled a new five-tier Bitcoin economy model.
