Strive: Leverage liquidations drove SATA and STRC plunge

On Thursday, Strive reported that forced unwinds of leveraged positions drove its SATA preferred equity and Strategy’s STRC well below their $100 par values. The firm attributed the moves to heavy trading and margin-driven liquidations rather than a decline in the underlying loans.

STRC hit an intraday low of $82.53 before recovering to close around $88.59. SATA traded as low as $92.88 and finished near $97.71. Strive’s chief risk officer, Jeff Walton, reported volumes for the day were among the instruments’ largest, with about $941 million of STRC and roughly $153 million of SATA changing hands.

CEO Matt Cole called Thursday ‘the most difficult day in the history of digital credit’ and wrote on social media, ‘What happened today was a leverage liquidation event, not a deterioration in underlying credit quality.’ He added that some investors borrow against these income-focused instruments to amplify returns until margin calls force rapid selling.

Walton wrote that ‘leverage appears to have been flushed, fundamentals intact, and the instruments absorbed the flow and found bids throughout the day,’ and added the firm is conducting a postmortem and has identified ‘a couple of anecdotal sources’ of concentrated leverage.

The preferred shares are structured to trade near $100 and were created to raise cash for Bitcoin accumulation while offering dividend income and lower volatility than common equity or direct Bitcoin exposure. STRC has not traded at its par since mid-May, a pattern the firm links in part to its dividend calendar and investor uncertainty about dividend timing.

Strategy sold 32 BTC last month for about $2.5 million, increasing cash reserves. On Thursday, both firms’ common shares fell: Strategy’s common stock closed lower and is down more than 32% over the past month, while Strive’s stock fell and is down nearly 6% for the month. U.S. markets were closed Friday for the Juneteenth holiday.

Strive reported it and its partners absorbed the trading flows and that the underlying digital-credit assets remain intact. The firm plans to publish a deeper analysis of the sources of concentrated leverage and the broader trading event.