Strategy’s STRC To Collapse Like Terra Luna? Crypto Expert Spots Striking Similarity

Crypto analyst Ali Martinez has voiced concerns about how Strategy’s STRC preferred stock is structured as it has a feedback loop. He believes it could further strain the company’s finances if Bitcoin experiences a long period of decline. His comments come as Strategy keeps relying on capital market products to fuel its Bitcoin accumulation spree.

Strategy’s STRC Structure Compared To Traditional Bonds

Martinez says the distinction is in how STRC reacts in times of market pressure. Standard corporate bonds have predetermined interest rates, and investors suffer losses as the bond values drop. Meanwhile, the interest rate obligations stay the same for the bond issuers.

In contrast, STRC has an adjustable dividend mechanism to assist in maintaining its market value. If the Bitcoin price is in a downward trend and investor demand is dropping, Martinez said that Strategy might have to raise payouts to draw buyers and to keep the STRC price from falling.

This scenario may increase the company’s financing expenses while the price of Bitcoin is dropping.

STRC Depicts Similarity To Terra-Luna’s Downward Spiral

To highlight the similarities between the May 2022 crash of the Terra token (LUNA) and STRC’s recent drop, Martinez presented a chart. The graph revealed that LUNA has dropped by 99.95% during the crisis, while the STRC price has fallen 17.45% since its launch.

Further, Strategy’s STRC structure has some conceptual similarities to what caused Terra-Luna’s collapse in 2022, Martinez said. He said that Strategy is quite different from Terra, and doesn’t have algorithmic tokens, but it can become a lot more cumbersome when it is in stress.

“It is conceptually similar to the Terra/Luna collapse,” Martinez wrote.

If Bitcoin price falls, it may mean that more cash will have to be allocated toward STRC to stabilize it around the $100 par. He cautioned that such a situation could create what he described as a “dangerous loop” in which falling asset values are accompanied by rising financial obligations

“While MicroStrategy isn’t printing tokens out of thin air, both systems use a mechanism that forces the issuer to take on more financial burden as things get worse,” he said.

The analyst added that “instead of acting as a safety net, the structure risks amplifying the pressure during a market downturn.”

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