The digital credit market experienced one of its sharpest sell-offs to date on Thursday, driven not by deteriorating credit quality, but by a wave of liquidations in leveraged positions. Matt Cole, CEO of Strive Asset Management, attributed the turbulence to forced selling rather than any fundamental weakness. The preferred share of Strive’s Strategy Fund, STRC, dipped as low as $82.50 before recovering to $89 within the day. Meanwhile, Strive’s SATA product fell below its $100 par value, touching under $93, but later rebounded to $97.
Liquidation-driven volatility in focus
In a post on X, Cole described the events as the “most challenging day in digital credit history.” He stressed that the volatile moves were not due to changes in underlying credit indicators, but rather to margin calls and mandatory sales that triggered a cascade of liquidations. Both the STRC and SATA instruments are structured to trade near their $100 face value under normal conditions.
What happened today was not a decline in core credit quality, but an event caused by leverage-driven liquidation, according to Matt Cole.
Strive Asset Management, profiled in the news, is recognized as a financial firm specializing in asset management. Cole explained that the sector’s relatively high yields had encouraged investors to take on leverage, and as prices began to fall, margin calls forced further rapid selling. He argued that this led to a self-reinforcing downturn disconnected from the issuers’ repayment capacity.
Looking back at similar historical events
Cole compared the situation to past collapses of US hedge funds with leveraged Treasury positions. Through this analogy, he underscored that, even in periods of severe market stress, sharp price movements do not automatically signal a weakening in the underlying creditworthiness of the affected securities. He emphasized the importance of distinguishing between market turmoil and genuine credit events.
The liquidation event is not the same as a credit event; even with market turbulence, our long-term view on digital credit remains unchanged, Cole explained.
Cole also stated that dividend reserves have been maintained and that the company is not under stress. He added that there has been little change to the company’s core credit profile, and the strong rebound after the sell-off signals that demand in the market has not completely dissipated.
Strong recovery from intraday lows
The swift recovery from the day’s lows signals that buyers stepped in during the steep decline. Cole noted that both STRC and SATA saw significant buying interest after their intraday troughs. This suggests that demand for digital credit assets persists despite high volatility.
Following the sharp market swings, attention has shifted to leverage levels in similar products and the possibility of more margin calls. Analysis cited in the article indicates that the recent drop is so far due more to market structure and positioning than to any underlying change in credit fundamentals.
