Sharp STRC, SATA Drops Were Leverage Liquidations, Not Credit Failures

According to Cole, strong collateral can sometimes encourage excessive risk-taking instead of preventing it.

Strive CEO Matt Cole said on June 19 that the recent steep sell-off in Strategy’s STRC and his company’s SATA was caused by forced liquidation from leveraged investors and not by any deterioration in the financial strength of the issuers.

His comments came after one of the most volatile trading sessions the sector has ever seen, with STRC falling to $82.50 and SATA dropping into the low $90s before both recovered as buyers stepped back into the market.

Cole Says Fundamentals Are Still Intact Despite Sell-Off

In a lengthy post on X, the Strive chief called Thursday the most difficult day in the history of what he termed Digital Credit. According to him, investors looking for higher yields increasingly borrowed against assets such as STRC and SATA, but when prices started falling, margin calls triggered even more selling, creating a cascade that pushed prices lower regardless of fundamentals.

“What happened today was a leverage liquidation event, not a deterioration in underlying credit quality,” he wrote.

He pointed to blowups that happened in the past in leveraged Treasury trades as a parallel, saying those failures had nothing to do with Treasuries becoming bad credits and everything to do with investors overextending themselves while chasing yield on something they assumed was safe.

Talking about Strive specifically, Cole said the firm’s dividend reserves have not been touched and that the company wasn’t under any strain. Further, he pointed out that leveraged flushes aren’t necessarily a signal of weak collateral, since, if anything, they tend to happen because the collateral looked stable enough to tempt people into piling on leverage in the first place.

But when Udi Wertheimer, co-founder of Taproot Wizards, pressed Cole on why STRC’s peak had looked weak even before the crash, with the stock only reaching $97 around its last ex-dividend date, he conceded that the demand picture had softened somewhat. He blamed that on a weak Bitcoin market, jitters around Strategy’s recent corporate moves, and unease over the company using cash to pay down a convertible note.

However, Cole also said that the bigger factor was the kind of buying involved.

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“If a security has billions of dollars of demand from long-only institutions, that is very different from demand driven by highly leveraged buyers,” noted the executive. “The latter can create strong demand on the way in, but also a much sharper unwind when prices move against them as we saw.”

According to him, Strive has one obvious lever with SATA if growth gets ahead of demand, which is to cut the interest rate to slow things down.

STRC’s Design Is Getting Stress-Tested

Market data shows STRC has since recovered to around $89 after the selloff, which is still some way off its $100 par, putting its effective yield near 13%, with a 30-day volatility of roughly 21%. Meanwhile, SATA, its newer and smaller sibling product, has held up somewhat better and was sitting just above $97 at the time of writing.

Strategy has said that its BTC treasury, currently valued at around $53 billion given Bitcoin’s price near $63,000, is enough to cover dividends for 32 years, considering the firm has about $1.7 billion in annual obligations. However, critics like Peter Schiff have often disputed that figure on the grounds that it assumes the cryptocurrency’s price doesn’t fall and the dividend rate doesn’t climb any higher.