Digital Credit Market Under Pressure From Forced Selling, Says Strive CEO

A record sell-off briefly pushed digital credit products sharply lower, but according to Strive CEO Cole, that was due to leverage liquidations, not weaker credit quality.

Key Takeaways

• The digital credit market took a big hit from a record sell-off, which Strive CEO Matt Cole said was caused by leverage liquidations.
• STRC fell intraday to $82.50 and SATA dropped below $93, but both products later recovered some of those losses.
• Cole says credit quality and dividend reserves are still intact, and this is not a credit crisis.

The digital credit market recently took a sharp hit from a record sell-off that, according to Matt Cole, CEO of Strive Asset Management, was mainly the result of leverage liquidations. These forced sales led to steep drops in Strive's digital credit products STRC and SATA, though both later recovered some of the losses.

Leverage Liquidation Drives Price Drops

Cole called it "the hardest day in the history of Digital Credit." STRC fell intraday to $82.50 (€72) before recovering to $89 (€78), while SATA dropped from its $100 (€87) par value to below $93 (€81), then later climbed back to $97 (€85). Both products are designed to trade close to their par value.

According to Cole, this was not a sign of weaker credit quality, but a leverage liquidation, where investors trading with borrowed money were forced to sell their positions after margin calls. That set off a downward spiral that had nothing to do with the borrowers' underlying financial health. Cole pointed to a saying in income markets: "the road to hell is paved with carry."

Credit Quality Remains Unchanged

Cole stressed that the underlying credit quality of the products remains intact and that the company itself is not under financial pressure. The dividend reserves, he said, are untouched, which points to a stable financial base despite market volatility.

The sharp drops were followed by strong buying interest, which explains the quick rebound. Cole made it clear that a liquidation event is not the same as a credit crisis and said he still remains confident in the long-term outlook for digital credit products.

Why This Matters for European Investors

For European investors, this event can serve as a warning about the risks of using leverage in the digital credit market, which has grown globally to around $1.6 (€1) to $2 trillion (€1.7 trillion). It shows how market shocks can be amplified by forced selling, separate from the actual creditworthiness of the borrowers. This may also matter given the broader volatility in crypto and traditional markets, partly driven by central bank policy and liquidity shifts. In the broader DeFi market, leverage has also been a recurring concern, including after on-chain leverage reportedly climbed back to 2021 levels, according to Binance Research.