Matt Cole said the steep decline in STRC and SATA was driven by forced selling from leveraged market participants, with both instruments later recovering part of their losses.

The digital credit market experienced one of its sharpest selloffs on record Thursday, which Strive Asset Management CEO Matt Cole attributed to leverage-fueled liquidations rather than any deterioration in underlying credit fundamentals.

In a post on X, Cole described the session as “the most difficult day in the history of Digital Credit,” noting that Strategy’s STRC fell to roughly $82.50 before rebounding to $89, while Strive’s SATA dropped below $93 and later recovered to $97. Both securities are designed to trade close to a $100 par value.

Cole stressed that the move reflected a liquidation cascade rather than weakening credit quality, arguing that issuer fundamentals remained intact.

He explained that investors drawn to the sector’s double-digit yields had increasingly used leverage to boost returns. When prices began to fall, margin calls triggered forced liquidations, amplifying the decline in a feedback loop disconnected from credit risk.

“There is an old saying in income markets that the road to hell is paved with carry,” he said.

Cole also compared the episode to past hedge fund failures involving leveraged Treasury positions, noting that the underlying government bonds remained fundamentally sound despite market turmoil.

He added that the firms’ financial positions remain stable, saying, “Our dividend reserves remain intact. Our company is not under stress,” and reiterated that the core credit profile was unchanged.

Both STRC and SATA saw strong buying interest after hitting intraday lows, which helped support their rebound, he noted.

Cole concluded that investors should distinguish between liquidity-driven liquidations and true credit deterioration, reaffirming his long-term conviction in the digital credit market despite the volatility.