The digital credit market saw a significant sell-off on Thursday, which Strive Asset Management CEO Matt Cole attributed to forced liquidation of leveraged funds rather than a weakening of issuers' creditworthiness. After a sharp intraday drop, both STRC and SATA rebounded, indicating continued buying support at lower levels.
The price deviated from the par value at one point during the trading session.
Cole stated on the X platform that this was one of the "toughest days in the history" for the digital credit market. Strategy's preferred stock product STRC once fell to $82.50 before recovering to around $89; Strive's SATA also fell from a face value close to $100 to below $93 before rebounding to around $97.
Both products were originally designed to trade at a face value close to $100, so the intraday volatility was particularly pronounced.
- STRC's intraday low was approximately $82.50.
- SATA briefly fell below $93 during the session.
- Both subsequently rebounded to approximately $89 and $97, respectively.
Strive stated that the decline was triggered by margin calls.
Cole believes that the recent high yields of these digital credit products have attracted some investors to use leverage to amplify their returns. When prices begin to decline, margin calls trigger forced selling, further depressing prices and creating a self-reinforcing downward trend.
He emphasized that this volatility should not be viewed as a credit event. According to him, the problem lies in the portfolio structure and financing chain, rather than the issuer's solvency.
Buying at lower levels is still underway.
Regarding the subsequent market rebound, Cole stated that both STRC and SATA saw significant buying activity near their intraday lows, indicating that demand for digital credit assets has not disappeared. He also noted that the company's dividend reserves remain intact, the company itself is not under additional pressure, and the underlying credit conditions have remained largely unchanged.
Cole compared this volatility to historical cases where hedge funds suffered squeezes due to high leverage in their holdings of U.S. Treasury bonds. His view is that while markets may experience sharp deleveraging during periods of stress, this does not necessarily mean a simultaneous deterioration in the credit quality of underlying assets.
This sell-off also reflects how leveraged trading is amplifying short-term volatility in the sector as high-yield digital credit products attract more funds. The rapid rebound that day indicates that the market is still rebalancing its pricing of related assets.
