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The digital credit market suffered one of its sharpest selloffs to date on Thursday, with Strive Asset Management CEO Matt Cole describing the move as a leverage-driven liquidation rather than a sign of weakening credit fundamentals.

Cole said it was "the most difficult day in the history of Digital Credit," in a post on X , as Strategy's preferred equity STRC fell as low as $82.50 before recovering to $89, while Strive's SATA dropped from its par value fell below $93 before rebounding to $97. Both products are designed to trade close to their $100 par value

"What happened today was a leverage liquidation event, not a deterioration in underlying credit quality," Cole wrote.

Investors attracted by the sector's relatively high yields (both products offer over double digit yields) increasingly used leverage to enhance returns, according to Cole. When prices began falling, margin calls triggered forced selling, creating a self-reinforcing decline detached from the underlying creditworthiness of issuers.

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

Cole compared the episode to historical hedge fund blowups involving leveraged U.S. Treasury positions, noting that Treasury securities themselves remained strong credits despite periods of market stress.

"Our dividend reserves remain intact. Our company is not under stress," Cole said, adding that the firm's underlying credit profile remains largely unchanged.

The sharp rebound from intraday lows suggests buyers stepped in aggressively as prices declined. "Both STRC and SATA experienced significant buying interest off their intraday lows," Cole noted.

"A liquidation event and a credit event are not the same thing," he added, maintaining his long-term conviction in digital credit despite the market turbulence.

In May, combined exchange volumes fell 3.45% to $4.41T; the lowest since September 2024. RWA perpetual futures volumes rose 10.4% against the trend, hitting a new all-time high.

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