'Most difficult day in the history of digital credit': Strive CEO says leverage liquidation drove STRC and SATA selloff

Matt Cole, Chairman and CEO of Strive, said Thursday's sharp intraday drop in Strategy's STRC and Strive's SATA was the result of a liquidation of leveraged positions rather than a deterioration in issuer fundamentals.

"Today was the most difficult day in the history of Digital Credit," Cole wrote on X Thursday evening. "What happened today was a leverage liquidation event, not a deterioration in underlying credit quality."

STRC and SATA, two high-yield perpetual preferred stocks designed to trade near a $100 par value, fell to significant lows on Thursday before partially recovering. STRC fell to a record low of $82.53, while SATA dropped to $92.88. The former closed the day at $88.59, while the latter closed at $97.71.

On Thursday, trading volume for both perpetual preferred stocks surged well above their averages. STRC traded 10.6 million shares versus an average daily volume of 3.6 million shares, while SATA traded 1.57 million shares compared with its daily average of 386,698 shares, per Yahoo Finance data.

The Strive CEO explained that investors borrow against these high-yield, low-volatility digital credit instruments to maximize returns.

"That works until it doesn't," Cole wrote. "When markets move against leveraged holders, forced selling can create a cascade. The selling becomes disconnected from fundamentals and becomes driven by balance sheet constraints."

Demand continues

Cole assured that Strive's dividend reserves remain intact and that the company continues to be well-positioned to execute the SATA strategy. 

"What is clear is that there was substantial demand at those prices," Cole said. "Both STRC and SATA experienced significant buying interest off their intraday lows, resulting in sharp recoveries."

While Strategy Executive Chairman Michael Saylor did not directly address STRC's performance, he posted to X on Friday: "Markets are closed today. Volatility is never easy. Bitcoin keeps working. So do we."

Both Strategy and Strive use their digital credit instruments to buy more bitcoin to steer their treasury strategy. When STRC or SATA trades above its $100 par value, the companies issue new shares to raise additional capital through at-the-market offerings.

Strategy has increasingly relied on STRC issuance to fund bitcoin purchases, recently selling 32 BTC to cover dividends on the preferred stock before acquiring 1,587 BTC the following week.