Matt Cole said the sharp drop in STRC and SATA was driven by forced selling from leveraged traders, with both assets later rebounding after the initial plunge.
The digital credit market saw one of its most severe selloffs on Thursday, which Strive Asset Management CEO Matt Cole attributed to leverage-driven liquidations rather than any weakening in underlying credit fundamentals.
In a post on X, Cole called it “the most difficult day in the history of Digital Credit,” noting that Strategy’s preferred equity STRC slid to about $82.50 before recovering to $89, while Strive’s SATA dropped below $93 before bouncing back to $97. Both securities are designed to trade close to a $100 par value.
Cole stressed that the move was a liquidation event, not a deterioration in credit quality, arguing that the underlying issuers remain fundamentally sound.
He explained that investors drawn to the sector’s double-digit yields had increasingly relied on leverage to boost returns. Once prices started falling, margin calls triggered forced selling, which intensified the decline in a self-reinforcing loop disconnected from credit fundamentals.
“There is an old saying in income markets that the road to hell is paved with carry,” he said.
Cole also drew parallels with past hedge fund blowups tied to leveraged Treasury positions, emphasizing that the underlying government bonds remained high-quality assets despite market stress.
He added that the companies’ financial positions remain solid, saying, “Our dividend reserves remain intact. Our company is not under stress,” and reiterated that core credit conditions were unchanged.
Both STRC and SATA saw strong demand from buyers after hitting intraday lows, helping drive their recovery, he noted.
Cole concluded that investors should distinguish between liquidation-driven volatility and true credit deterioration, reaffirming his long-term confidence in the digital credit market despite the turbulence.
