News Block: Digital Credit's Worst Day Ever, Warsh's New Fed Era Begins, Bitcoin's Community Attack Problem

**Natalie Brunell** (0:01)
Welcome to the Coin Stories News Block, powered exclusively by Ledn. I'm Natalie Brunell, and in about 10 minutes or less, I'll provide you with insightful updates on Bitcoin, financial markets, and the global economy. Everything you need to know in one block. Let's go.
While AI stocks and mega IPOs like SpaceX have been dominating this market, Bitcoin has really been left behind. It's still down about 50% from its all-time high. But now the pain has spread into the emerging digital credit market. Last Thursday was what Strive CEO Matt Cole called the most difficult day in the history of digital credit. Strategy Stretch fell to a low of $82.53 before recovering to close at $88.59 heading into the long weekend. And Strive Seda dropped from par into the low 90s before rebounding to $97.71. Now for those unfamiliar, Stretch and Seda are preferred stocks that are designed to trade around $100. They pay high dividends, 11.5% for Stretch, 13% for Seda. And when they trade at or above par, the companies can issue new shares and use the proceeds to buy Bitcoin.
A lot of investors looked at the decline and saw a credit event, a sign that the market was losing confidence in the issuers. But Cole argues the opposite. His view is that this was a leverage liquidation event, not a deterioration in underlying credit quality. And it's really not hard to see how the leverage built up. These instruments were offering double-digit yields with relatively low volatility. And that attracted investors who didn't just buy, they borrowed against them. Some were running carry trades, borrowing money at 5% or 6%, and buying stretch yielding 11.5%, pocketing the spread. That works until it doesn't. When prices fall, margin calls arrive, forced selling cascades and price action becomes completely disconnected from fundamentals. We've seen this movie play out before. Some of the largest hedge fund blow ups in history involved leveraged positions in US treasuries before investors got overextended trying to squeeze a little extra yield out of assets they viewed as safe. And Cole believes a similar dynamic sort of played out here. Now, here's something worth understanding about the mechanics. Stretch's dividend is based on its $100 par value, not its market price. So when the stock falls below $100, the yield you're getting paid actually goes up. An investor buying stretch at $85 receives the same dividend payment as someone who bought it at $100, which means they're earning roughly 13.5% instead of 11.5%.
The lower the price, the higher the yield. That creates a natural incentive for income-focused buyers to step in as the discount widens. But separately, investors are also working through broader questions about the company, including how strategy's guidance has evolved over time, its willingness to sell Bitcoin, the MNAV levels at which it would issue shares, and the decision to use cash reserves recently to pay down debt. Now, Saylor addressed many of these directly in my recent interview with him, so I'd encourage you to listen if you want to understand how he thinks about the math. On Friday, Saylor also addressed the broader pressure on X, sharing a video from a speech he gave in October 2022, when Bitcoin was near $20,000 and strategy's debt briefly exceeded its reserves. His post read, We stayed focused, strengthened the company, and executed our strategy. Since then, strategy has raised over $60 billion of additional capital and invested it in Bitcoin, adding more than 716,000 Bitcoin. Today, our BTC and USD reserves exceed debt by $48 billion. Thank you to everyone who believed, endured, and took the long view.
And the company is still buying, so whatever the noise around digital credit, the accumulation has not stopped.
But, you know, I have to say, what concerns me isn't the debate around digital credit itself. It's really how the debate is playing out. I've watched people who know each other well. They've shared meals. They have each other's phone numbers. Just tear into each other publicly online. And these complex disagreements about financial instruments and business models, they're sort of being reduced to gotcha moments and 280 character attacks. I'd love to see people from these opposing views come together a little bit more, have a debate on x spaces, or at least just do a phone call, anywhere that allows for tone, context and real conversation. Bear markets are super stressful and there are people that are really hurting. But this community has been through worse, and the people in it are so much better than what I've been seeing online lately. Debate is super healthy. Personal attacks, not so much. And Bitcoin doesn't need us to agree on everything, of course, but maybe we could disagree a little better.