Strategy sold 32 BTC last week to cover STRC dividends while sitting on $10.8 billion in unrealised losses. The digital credit thesis is getting its first live stress test and most of the commentary is treating it as a non-event.
The model is a carry trade. It works when Bitcoin appreciation exceeds cost of capital. But carry trades have a specific failure mode Cole didn't really address: reflexivity. When multiple issuers need to liquidate Bitcoin during the same drawdown to meet obligations, they become correlated forced sellers. The selling deepens the drawdown, which triggers more obligation pressure. Structurally identical to the yen carry trade unwind.
I'd put roughly 30% odds on a digital credit credit event within three years. The 2027-2029 institutional adoption window Cole describes is also the window where the model faces its first real recession.
You said that "when multiple issuers need to liquidate bitcoin during the same drawdown to meet obligations, they become correlated forced sellers." This comparison to a yen carry trade unwind is incorrect for two major reasons:
The math does not support a market impact.
If Strategy and Strive cannot raise money by selling common stock, they can sell Bitcoin to pay dividends. However, their semi-monthly and daily dividends are infinitesimally small compared to Bitcoin's daily trading volume. Strive would have to sell 5 BTC per day to cover their dividend, and Strategy around 50 BTC. The total daily trading volume for BTC is between 700,000 and 900,000 BTC.
There is no leverage-driven reflexivity.
The Yen carry trade collapsed because players used high leverage. When asset prices fell, margin calls forced massive, immediate liquidations. Strategy and Strive do not have leveraged obligations that automatically increase if Bitcoin's price goes down. Because they lack this debt-driven trigger, a drop in Bitcoin's price cannot kick off a forced feedback loop of selling. Their only fixed obligations are these small, scheduled dividend payments.
Strategy sold 32 BTC last week to cover STRC dividends while sitting on $10.8 billion in unrealised losses. The digital credit thesis is getting its first live stress test and most of the commentary is treating it as a non-event.
The model is a carry trade. It works when Bitcoin appreciation exceeds cost of capital. But carry trades have a specific failure mode Cole didn't really address: reflexivity. When multiple issuers need to liquidate Bitcoin during the same drawdown to meet obligations, they become correlated forced sellers. The selling deepens the drawdown, which triggers more obligation pressure. Structurally identical to the yen carry trade unwind.
I'd put roughly 30% odds on a digital credit credit event within three years. The 2027-2029 institutional adoption window Cole describes is also the window where the model faces its first real recession.
You said that "when multiple issuers need to liquidate bitcoin during the same drawdown to meet obligations, they become correlated forced sellers." This comparison to a yen carry trade unwind is incorrect for two major reasons:
The math does not support a market impact.
If Strategy and Strive cannot raise money by selling common stock, they can sell Bitcoin to pay dividends. However, their semi-monthly and daily dividends are infinitesimally small compared to Bitcoin's daily trading volume. Strive would have to sell 5 BTC per day to cover their dividend, and Strategy around 50 BTC. The total daily trading volume for BTC is between 700,000 and 900,000 BTC.
There is no leverage-driven reflexivity.
The Yen carry trade collapsed because players used high leverage. When asset prices fell, margin calls forced massive, immediate liquidations. Strategy and Strive do not have leveraged obligations that automatically increase if Bitcoin's price goes down. Because they lack this debt-driven trigger, a drop in Bitcoin's price cannot kick off a forced feedback loop of selling. Their only fixed obligations are these small, scheduled dividend payments.
Bullish on $BRR