The digital credit market experienced one of its most significant selloffs on Thursday, with Strive Asset Management CEO Matt Cole characterizing the event as a leverage-driven liquidation rather than an indication of deteriorating credit fundamentals.
Cole described it as “the most difficult day in the history of Digital Credit” in a post on X, noting that Strategy’s preferred equity STRC declined to $82.50 before recovering to $89, while Strive’s SATA dropped below $93 from its par value before rebounding to $97. Both instruments are designed to trade near their $100 par value.
“What happened today was a leverage liquidation event, not a deterioration in underlying credit quality,” Cole stated.
Investors seeking the sector’s elevated yields – both products offering over double-digit returns – increasingly employed leverage to boost returns, according to Cole. As prices declined, margin calls triggered forced selling, creating a self-reinforcing downward spiral disconnected from issuers’ underlying creditworthiness.
“There is an old saying in income markets that the road to hell is paved with carry,” he remarked.