STRC plunges 17% to $82.50 as margin calls trigger digital credit rout

Strategy's Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) fell as low as $82.50 on Thursday, a 17% decline from its $100 par value, before recovering to $89 as forced selling from leveraged investors swept the digital credit market. Strive Asset Management's SATA dropped below $93 before rebounding to $97, according to market data.

"What happened today was a leverage liquidation event, not a deterioration in underlying credit quality," Matt Cole, chief executive officer of Strive Asset Management, said in a post on X. Cole described the session as "the most difficult day in the history of Digital Credit," comparing the episode to historical hedge fund blowups involving leveraged U.S. Treasury positions where the underlying securities remained strong credits.

Investors attracted by double-digit yields — STRC offers an 11.5% annual dividend while SATA pays 12% — had increasingly used leverage to enhance returns, Cole said. When prices began falling, margin calls triggered forced selling that created a self-reinforcing decline detached from issuer fundamentals. "There is an old saying in income markets that the road to hell is paved with carry," he added. Strive's dividend reserves remained untouched during the selloff, Cole said.

The selloff coincided with broader crypto market weakness as Bitcoin traded near $63,000, down about 4% over 24 hours, after the Federal Reserve's hawkish pivot under new Chair Kevin Warsh pushed rate-cut expectations off the table. Strategy's common stock (MSTR) fell to around $110, near a 52-week low, while the company's Bitcoin holdings stood at 846,842 BTC valued at roughly $53 billion. The Financial Times' Alphaville column published an obituary for STRC, calling it "a tapeworm inside the Strategy belly" — a contrarian signal that some traders noted preceded a Bitcoin rally after a similar FT piece in February.

The sharp rebound from intraday lows suggested buyers absorbed the selling pressure as prices declined. "Both STRC and SATA experienced significant buying interest off their intraday lows," Cole said. "A liquidation event and a credit event are not the same thing." STRC's effective yield stood near 13% after the drop, with 30-day volatility approaching 21%, while SATA traded above $97. Strategy has said its Bitcoin treasury can support dividend obligations for decades, though the company's decision to sell 32 Bitcoin last month — framed as a capital management move — triggered its worst weekly stock performance since November 2022.

This article is for informational purposes only and does not constitute investment advice.