Why Strategy’s STRC Draws Focus in Private Credit Market Stress

Credit market stress in the US is intensifying with the US Business Development Companies Index (MVBDC) sinking to a multi-year low.

Analysts warn that mounting pressure in private credit markets could trigger a broader market sell-off, raising concerns for risk assets across equities and crypto. Nonetheless, an expert is making the case for “digital credit,” using MicroStrategy’s perpetual share STRC, as a case study.

Private Credit Sector Under Severe Pressure

In a recent post on X (formerly Twitter), The Kobeissi Letter noted that the index has fallen to 424 points. This marks its lowest level since the bottom of the 2022 bear market. Over the past year, it has dropped by 150 points, representing a 25% decline.

The Kobeissi Letter added that this downturn is unfolding alongside several significant developments within private credit markets. Last week, Blue Owl Capital permanently halted investor redemptions at its retail private credit fund, Blue Owl Capital Corp II (OBDC II). 

That announcement hit financial markets hard, with Blue Owl shares plunging 10% the next day and prompting a wider sell-off across private credit stocks.

The post added that Blue Owl shares have tumbled nearly 60% over the past 13 months, despite revenue growth. Meanwhile, other industry giants Ares, Apollo, KKR, Blackstone, and TPG are down 15% to 40% year to date.

This comes as concerns about artificial intelligence are spilling into private credit markets. In early February, UBS Group AG cautioned that private credit default rates could climb to 13% under what it described as an “aggressive” AI-driven disruption scenario. 

The bank’s strategists, including Sachin Ganesh, argued that the asset class appears more vulnerable to AI-related risks than leveraged loans or high-yield bonds. UBS estimated that roughly 35% of the $1.7 trillion private credit market is exposed to AI disruption risks.

Nonetheless, recent developments have worsened the outlook. This week, the analysts revised their worst-case scenario, noting that private credit could see default rates go as high as 15%, up 2 percentage points from their early February forecast.

Bitcoin and Crypto Market Exposure to Credit Contagion

Bitcoin’s price has tracked US software stocks. This dynamic means that stress in private credit, especially when tied to software lending, may ripple through digital asset markets.  

Furthermore, experts suggest that private credit market stress could trigger a much larger decline in markets. 

Crypto assets, including Bitcoin, tend to perform in environments characterized by ample liquidity and strong investor risk tolerance.  A deterioration in credit conditions may impact this. As capital becomes more defensive and funding costs rise, investors may reduce exposure to high-volatility assets, including digital tokens.

Furthermore, stress in private credit could amplify volatility if it triggers forced deleveraging among institutional investors with cross-asset exposure. In such a scenario, digital asset markets may not be directly exposed to private credit defaults. Yet, they could still feel the secondary effects through tighter liquidity, weaker equity markets, and declining investor confidence.

As FSK Slides, MicroStrategy’s STRC Holds Steady — Livingston Sees Structural Advantage

Nonetheless, some analysts remain optimistic. Adam Livingston, Bitcoin educator and content creator, argues that Bitcoin and digital credit could “annihilate the private credit market.”

He contrasts FSK, a large publicly traded BDC often seen as a proxy for private credit, with STRC, MicroStrategy’s perpetual preferred share, nicknamed “Stretch.” 

FSK is down roughly 45% over the past year and trades at a steep discount to its reported NAV of $21.99. Livingston attributes this to rising non-accruals, growing credit stress, and market skepticism toward manager-marked valuations.

By comparison, STRC trades near its $100 par value and has delivered low-teens total returns over the same period, even after a 50% drop in Bitcoin. Livingston says the difference lies in structure. 

Private credit relies on infrequent marks, gated liquidity, and investor trust. STRC, he argues, offers continuous price discovery, SEC disclosures, monthly dividend adjustments designed to anchor price near par, and a visible balance sheet backed by $2.25 billion in cash and over 713,000 BTC.

Still, it’s worth noting that while the argument is compelling, private credit and digital credit operate on fundamentally different risk engines: one tied to borrower cash flows and economic cycles, the other tied to Bitcoin’s price volatility and treasury strategy. 

Rather than replacing private credit, digital credit may offer an alternative structure that appeals to investors prioritizing liquidity and transparency.