Digital credit offerings from Bitcoin treasury firms faced unprecedented turmoil on Thursday, suffering significant price declines that led to what Strive CEO Matt Cole termed the most challenging day in the history of digital credit. Cole attributed the sharp declines primarily to leveraged positions being unwound, rather than any weakening of the underlying credit quality.
The turbulence particularly affected Strive’s preferred equity product, SATA, and Strategy’s digital credit offering, STRC, both of which fell noticeably below their intended par values. Cole emphasized in a post on social media platform X that the downturn was a result of a leverage liquidation event. He elaborated that attractive yield opportunities often motivate investors to increase their positions using borrowed capital, a strategy that can backfire when market conditions shift.
On Thursday, both SATA and STRC recorded significant trading activity, with trading volumes reaching $153 million and $941 million, marking the second- and fourth-highest trading days for these instruments, respectively. Jeff Walton, Strive’s Chief Risk Officer, highlighted that the trading volumes for these digital credit products, in contrast to larger preferred equity instruments like JPMorgan’s JPM.PD and Blackrock’s PFF, enhanced the likelihood of a leverage unwind.
“Leverage appears to have been flushed, fundamentals intact, and the instruments absorbed the flow and found bids throughout the day,” Walton noted in a post on X. When pressed for more details regarding the concentration of SATA leverage, Walton mentioned that Strive is currently analyzing the situation further, promising a more comprehensive assessment in the future.
Both SATA and STRC are intended to trade around $100 per share; however, the events of Thursday saw SATA drop to a low of $92.88 and STRC face an even steeper decline, reaching its daily low of $82.53 before closing at $88.59. While it is not uncommon for STRC to trade beneath its par value after dividend dates, analysts indicated that concerns regarding the firm’s ability to fulfill its dividend obligations have led to ongoing market weakness.
The digital credit products aim to provide both Strive and Strategy a means to accumulate Bitcoin, appealing to investors seeking less volatility and dividend opportunities compared to common equity or direct exposure to Bitcoin. Despite this, skepticism regarding the financial mechanisms of these products has risen, especially after Strategy sold 32 BTC for $2.5 million last month—a move that deviated from their previous stance to never sell, thus raising questions about their financial strategy.
Even with bolstered cash reserves and assurances about maintaining dividend payouts, both firms’ common shares continued to struggle. At the close of Thursday’s trading, shares of MicroStrategy (MSTR) fell by 3.46% to $112.53, reflecting a decline of over 32% in the past month. Meanwhile, Strive’s shares (ASST) decreased by 3.8% to $14.85, leading to nearly 6% in monthly losses. Investors are left navigating a complex landscape as U.S. markets will be closed on Friday for the Juneteenth federal holiday.
