The digital credit market experienced a significant downturn on Thursday, characterized by forced selling linked to leveraged investments. Matt Cole, CEO of Strive Asset Management, described the situation as a “leverage liquidation event,” emphasizing that it was not indicative of deteriorating credit quality among issuers.
During this selloff, Strive’s preferred equity product, STRC, plummeted to an intraday low of $82.50 before recovering to $89. Similarly, Strive’s SATA fell below its par value of $93, eventually bouncing back to $97. Both products are typically expected to trade near their $100 par value.
Cole highlighted that investors, drawn by the attractive yields offered by these products—over double-digit returns—had increasingly employed leverage to amplify their gains. As prices began to drop, margin calls triggered forced selling, leading to a rapid decline that was disconnected from the underlying creditworthiness of the issuers.
“What happened today was a leverage liquidation event, not a deterioration in underlying credit quality,” Cole stated.
He further compared the incident to historical occurrences involving hedge funds that faced significant losses due to leveraged positions in U.S. Treasury securities. Despite these market stresses, Treasury securities have generally maintained their status as strong credits.
Despite the turmoil, Cole reassured investors that Strive’s dividend reserves remain intact and that the firm is not under financial strain. He asserted that the underlying credit profile of their offerings has not changed significantly.
The swift recovery of STRC and SATA from their lows indicates robust buying interest. Cole noted, “Both STRC and SATA experienced significant buying interest off their intraday lows,” suggesting that confidence in these digital credit assets remains strong.
“A liquidation event and a credit event are not the same thing,” he added, reinforcing his long-term belief in the digital credit market despite the recent volatility.
The digital credit market faced a sharp selloff due to forced selling linked to leveraged investments, as described by Strive Asset Management's CEO. Despite significant price declines, both STRC and SATA rebounded, indicating strong buyer interest and a stable underlying credit profile.