The digital credit market suffered one of its sharpest selloffs to date on Thursday,
with Strive Asset Management CEO Matt Cole describing the move as a leverage-driven liquidation rather than a sign of weakening credit fundamentals.
Cole said it was “the most difficult day in the history of Digital Credit,” in a post on X, as Strategy’s preferred equity STRC fell as low as $82.50 before recovering to $89, while Strive’s SATA dropped from its par value fell below $93 before rebounding to $97. Both products are designed to trade close to their $100 par value
“What happened today was a leverage liquidation event, not a deterioration in underlying credit quality,” Cole wrote.
Investors attracted by the sector’s relatively high yields (both products offer over double digit yields) increasingly used leverage to enhance returns, according to Cole. When prices began falling, margin calls triggered forced selling, creating a self-reinforcing decline detached from the underlying creditworthiness of issuers.
“There is an old saying in income markets that the road to hell is paved with carry,” he said.