The digital credit market suffered one of its strongest sell-offs to date on Thursday.
Matt Cole, CEO of Strive Asset Management, describes the move as a leverage-driven sell-off rather than a sign of weakening credit fundamentals.
Cole said it was “the toughest day in the history of digital credit,” in a post on
“What occurred today was a leverage liquidation event, not a deterioration in underlying credit quality,” Cole wrote.
According to Cole, investors attracted by the sector’s relatively high yields (both products offer double-digit yields) increasingly used leverage to enhance returns. When prices began to fall, margin calls triggered forced selling, creating a self-reinforcing decline that was separate from the underlying creditworthiness of the issuers.
“There’s an old saying in the rental markets that the road to hell is paved with carry,” he said.
